================================================================================
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the fiscal year ended August 31, 2008
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to .
---------- ----------
Commission File Number: 0-15482
ONCOLOGIX TECH, INC.
--------------------------------------------
(Name of small business issuer in its charter)
Nevada 86-1006416
--------------------------- -----------------
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
P.O. Box 8832
Grand Rapids, MI 49518-8832
--------------------------------------
(Address of principal executive offices)
(616) 977-9933
--------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered under Section 12(g) of the Act:
Name of exchange on which registered Title of Each Class
------------------------------------ -------------------
None None
Securities registered under Section 12(b) of the Act:
Common Stock, $.001 Par Value
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. - Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes [ ] No [X]
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [ ] No [X]
Indicate by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of "large accelerated filer", "accelerated filer", and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated Filer [ ] Accelerated Filer [ ]
Non-accelerated Filer [ ] Smaller Reporting Company [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) Yes [ ] No [X]
The aggregate market value of the Common Stock of the registrant held by
non-affiliates as of September 8, 2009 was approximately $4,001,110 based on
closing stock price of the registrant's common stock.
The number of shares of Common Stock outstanding as of September 8, 2009 was
155,900,625.
Documents Incorporated By Reference
None
================================================================================
TABLE OF CONTENTS
PART I
Item 1 Description of Business..................................... 2
Item 1A Risk Factors................................................ 5
Item 1B Unresolved Staff Comments................................... 8
Item 2 Properties.................................................. 8
Item 3 Legal Proceedings........................................... 8
Item 4 Submission of Matters to a vote of Security Holders......... 8
PART II
Item 5 Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities........... 9
Item 6 Selected Financial Data..................................... 12
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 12
Item 7A Quantitative and Qualitative Disclosures About Market Risk.. 18
Item 8 Financial Statements and Supplementary Data................. 18
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure......................... 19
Item 9A(T) Controls and Prodecures..................................... 19
Item 9B Other Information........................................... 20
PART III
Item 10 Directors, Executive Officers and Corporate Governance...... 21
Item 11 Executive Compensation...................................... 23
Item 12 Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.................. 27
Item 13 Certain Relationships and Related Transactions, and
Director Independence....................................... 28
Item 14 Principal Accountant Fees and Services...................... 29
PART IV
Item 15 Exhibits, Financial Statement Schedules..................... 30
SIGNATURES.................................................. 33
1
IMPORTANT NOTICE
This Report was required to be filed on December 14, 2008. We were
unable to meet that requirement because we lacked funds to pay independent
auditors to perform the necessary examination and reviews of our financial
statements as required by law. We are now engaged in an effort to return to full
compliance by the filing of this Annual Report on Form 10K and the preparation
and filing of delinquent Quarterly Reports on Form 10Q for each of the three
fiscal quarters following the end of our 2008 fiscal year.
FORWARD LOOKING STATEMENTS
This Current Report contains forward-looking statements as that term
is defined in Section 27A of the United States Securities Act of 1933 and
Section 21E of the Securities and Exchange Act of 1934. These statements relate
to future events or future financial performance. In some cases, you can
identify forward-looking statements by terminology such as "may", "should",
"expects", "plans", "anticipates", "believes", "estimates", "predicts",
"potential" or "continue" or the negative of these terms or other comparable
terminology. Such statements are based on currently available financial and
competitive information and are subject to various risks and uncertainties that
could cause actual results to differ materially from historical experience and
present expectations. Undue reliance should not be placed on such
forward-looking statements as such statements speak only as of the date on which
they are made. These statements are only predictions and involve known and
unknown risks, uncertainties and other factors that may cause our or our
industry's actual results, levels of activity, performance or achievements to be
materially different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements.
Forward-looking statements are predictions and not guarantees of
future performance or events. The forward-looking statements are based on
current industry, financial and economic information, which we have assessed but
which by its nature, is dynamic and subject to rapid and possibly abrupt
changes. Our actual results could differ materially from those stated or implied
by such forward-looking statements due to risks and uncertainties associated
with our business. We hereby qualify all our forward-looking statements by these
cautionary statements. We undertake no obligation to amend this report or revise
publicly these forward looking statements (other than pursuant to reporting
obligations imposed on registrants pursuant to the Securities Exchange Act of
1934) to reflect subsequent events or circumstances.
These forward-looking statements speak only as of their dates and
should not be unduly relied upon. We undertake no obligation to amend this
report or revise publicly these forward-looking statements (other than pursuant
to reporting obligations imposed on registrants pursuant to the Securities
Exchange Act of 1934) to reflect subsequent events or circumstances, whether as
the result of new information, future events or otherwise.
Throughout this report, unless otherwise indicated by the context,
references herein to the "Company", "Oncologix", "we", our" or "us" means
Oncologix Tech, Inc.., a Nevada corporation and its corporate subsidiaries and
predecessors.
PART I
ITEM 1. BUSINESS
OVERVIEW
We were originally formed in 1995 as "Wavetech, Inc." a New Jersey
corporation and changed our corporate domicile to Nevada in December 1997, by
merging into a Nevada corporation named, "Interpretel International, Inc." We
subsequently changed our name, first to "Wavetech International, Inc." and then,
in 2000, to "BestNet Communications Corp." Our business at the time was to
provide worldwide long distance telephone communication and teleconferencing
services to commercial and residential consumers through the internet. That
business was never profitable and we were able to continue it only by repeated
equity and debt financings. Accordingly, during December 2006, we determined to
dispose of that business and sold it during February 2007. The discontinuation
of the telephone business segment has been recorded separately in the
accompanying consolidated financial statement.
We entered the medical device business at the end of July 2006 through
the acquisition of JDA Medical Technologies, Inc. ("JDA"), a development stage
company, which was merged into our wholly owned subsidiary, Oncologix
2
Corporation. On January 22, 2007, we changed our name to Oncologix Tech, Inc.,
to reflect this new business. During June 2007, we moved our principal offices
from Grand Rapids, Michigan, to our offices at 3725 Lawrenceville-Suwanee Road,
Suite B-4, Suwanee, Georgia, 30024, telephone (770) 831-8818. At that address,
our business was the development of a medical device for brachytherapy
(radiation therapy), called the "Oncosphere" (or "Oncosphere System"), for the
advanced medical treatment of soft tissue cancers. It is a radioactive
micro-particle designed to deliver therapeutic radiation directly to a tumor
site by introducing the micro-particles into the artery that feeds the tumor
tissue. Its first application is expected to be the treatment of liver cancer.
Due to a lack of funding, we had to suspend these activities on December 31,
2007, whereupon we closed the offices in Suwanee Georgia.
Our new mailing address is P.O. Box 8832, Grand Rapids, MI 49518-8832,
telephone (616) 977-9933.
During May 2008, we determined to dispose of most of the assets of the
Oncosphere project. This information is being presented as discontinued
operations for all periods shown.
SUBSEQUENT EVENTS
The material events described below occurred after the end of our 2008
fiscal year.
In February 2009, we entered into a Technology Agreement with Institut
fur Umwelttechnologien GmbH, a German Company ("IUT") whereunder the parties
have agreed that:
(a) The Company has granted an exclusive license to a new IUT
subsidiary, called "IUTM", to develop and manufacture
products based on the Company's proprietary information.
This proprietary information is not based on the technology
that had been subject to the Master License Agreement with
the University of Maryland - Baltimore. The Company has also
transferred to IUTM a number of items of laboratory
equipment and inventory useful in connection with the
licensed information.
(b) The Company retains rights to market products based on such
information as well as first consideration for marketing
rights for other possible IUTM products.
(c) In consideration of the license, the Company has received a
10% equity interest in IUTM, which is organized as a private
German limited liability company and IUT has assumed
approximately $82,000 of the Company's indebtedness.
(d) The Company's marketing rights have been transferred to its
subsidiary, Oncologix Corporation and has issued IUTM 10% of
the equity ownership of that subsidiary.
In addition, on April 7, 2009, the Company entered into a Termination
Agreement with the University of Maryland - Baltimore, The Master License
Agreement between the Company and the University has been formally terminated
and each party has released the other from all liabilities arising under the
Master License Agreement.
We have been advised that the group of German companies of which IUTM
is a part ("Group") is continuing the development of a brachytherapy device
generally as described above but based on proprietary technology not developed
by the University of Maryland. We have begun discussions with the Group to
determine our future business and financial relationships and plans, including
the possibility of developing and commercializing other radiation-based medical
products. Our plan is then to seek financing for the implementation of those
plans. While our Management is optimistic as to the outcome of those discussions
and future success in financing, it is not possible to predict the probabilities
of success with any degree of certainty.
By letter dated August 12, 2009, the Securities and Exchange
Commission ("SEC") notified us that unless we become current with our required
public filings by August 27, 2009, the SEC may cause the Company to be
de-registered under the securities laws and that the SEC may issue an order
suspending public trading of the Company's securities. As a result of
preliminary conversations with the staff of the SEC, the Company believes that
additional time may be granted that will be sufficient for the Company to be
compliant with its filings. However, there is no assurance of that outcome. Such
de-registration and suspension of trading will seriously limit the ability of
investors to re-sell any of our shares held by them. In June, 2009, we began an
effort to achieve compliance with all reporting requirements and our independent
auditors began the process of examining our financial statements with a view to
certifying them as required by law. This process was completed as shown by the
auditor's report on the Financial Statements included in this Annual Report.
3
MICROSPHERE PRODUCT
The following terms which are used throughout this Report have the
following meanings:
"Brachytherapy" refers to the process of placing therapeutic radiation
sources in or near diseased tissue.
"FDA" refers to the United States Food and Drug Administration.
"Investigational Device Exemption" or "IDE" refers to a procedure
whereby the FDA grants permission to test a new product with human patients in
the United States.
"Micro-arterial brachytherapy" refers to the delivery of radiation
into or near a tumor through the artery carrying the blood supply to the tumor.
"Microsphere" refers to a spherical microparticle, approximately
one-quarter the width of a human hair, capable of containing or binding a
radioisotope for the purpose of delivering radiation treatment directly to a
tumor through the system of arteries (vasculature) supplying blood to the tumor.
Our product is an innovative version of a microsphere that we call the
"Oncosphere."
The Microsphere Product
The product being developed by the Group (defined above) is a
microsphere intended for use as a means of micro-arterial brachytherapy in the
treatment of soft tissue cancer tumors in the liver. Soft tissue tumors are
connected to the blood supply and this kind of therapy is administered through
the patient's blood supply system.
Soft tissue tumors are among the most difficult forms of cancer to
treat. If not cured by initial therapy, these tumors eventually become
unresponsive to chemotherapy and spread (metastasize) throughout the body. While
there has been some progress in recent years in treating these cancers with
surgery and chemotherapy, the five-year survival rates remain less than five
percent. There is a strong demand from patients and physicians confronting this
type of cancer for effective, easy-to-use therapies with acceptable side
effects. We believe that if and when it is fully developed and approved for use
the IUTM product will provide such a therapy if developed.
Currently the standard treatment for patients with advanced cancerous
tumors is chemotherapy, which is not specific to (that is, does not discriminate
as to) various types of cancer and has side effects that damage or destroy many
normal cells as well as the cancer cells. Thus, chemotherapy may result in
additional illness and even death. High doses of chemotherapy have typically
resulted in extended, unpleasant and sometimes life-threatening hospital stays.
Patients often require expensive, invasive medical attention before they recover
and are discharged to their homes.
An alternative therapy, radiation, is most often administered by
delivering a beam from outside of the patient's body ("external beam radiation")
through the patient's body to the cancer tumor. Cells do not become resistant to
radiation as they do to chemotherapy. Therefore, radiation delivered to the cell
in sufficient doses will cause the death of the cell. However, because the
radiation originates from outside the body, the healthy tissues surrounding the
tumor and those between the source and the tumor also receive radiation and
suffer damage that can cause significant adverse side effects.
Micro-arterial brachytherapy is an improvement over both chemotherapy
and external beam radiation. In this form of treatment, microspheres bearing
radiation are delivered directly through the bloodstream to the site of a cancer
tumor, thereby avoiding healthy tissues. Micro-arterial brachytherapy has the
additional significant advantage of being administered in an outpatient
procedure, with most patients being able to return home the day of treatment.
We believe that if and when the development of the IUTM product has
been completed and it is approved by the FDA and used in the treatment of
patients, it will have significant competitive advantages over microspheres now
in the market.
GOVERNMENT REGULATION
Our activities in the development, manufacture and sale of cancer
therapy products are and will be subject to extensive laws, regulations,
regulatory approvals and guidelines. Within the United States, therapeutic
radiological devices must comply with the U.S. Federal Food, Drug and Cosmetic
Act, which is enforced by the FDA. We are also required to adhere to applicable
4
FDA regulations for Good Manufacturing Practices, including extensive record
keeping and periodic inspections of manufacturing facilities. Medical devices
such as the Oncosphere cannot be used or sold unless they are approved for
specified purposes by the FDA. There are two levels of FDA approval. The first
is the granting of approval to test the device in human subjects through an IDE;
the second is obtaining approval to market the device to the public for the
treatment of specified diseases through a PMA. We plan to evaluate the
Oncosphere System in humans in two stages: in a Feasibility Study first with up
to ten patients in two hospitals and then, if the Feasibility Study is
successful, in a Pivotal Trial with up to 200 patients at up to ten hospitals.
Separate FDA approval will be required for each such stage.
If our discussions with the Group and subsequent financing are
successful, our business is expected to involve the importing, exporting,
design, manufacture, distribution, use and storage of beta- and gamma-emitting
radioisotopes. These activities in the United States are subject to federal,
state and local rules relating to radioactive material promulgated by the
Nuclear Regulatory Commission ("NRC"), and states that have subscribed to
certain standards and local authorities, known as "Agreement States." In
addition, we must comply with NRC, state and U.S. Department of Transportation
requirements for labeling and packaging shipments of radiation sources to
hospitals or others users of our devices. In order to market our devices
commercially in the U.S., we will be required to obtain a sealed source device
registration from Agreement States and/or the NRC, depending on the states in
which the device will be distributed.
Additionally, hospitals in the United States are required to have
radiation licenses to hold, handle and use radiation. Many hospitals and/or
physicians in the United States will be required to amend their radiation
licenses to include our isotopes before receiving and using them. Depending on
the state in which the hospital is located, the license amendment will be
processed by the responsible subscribing state department or agency or by the
NRC.
Obtaining such registration, approvals and licenses can be complicated
and time consuming and there is no assurance that any of them can be obtained.
COMPETITION
We are aware of several companies that have developed competing
products to address soft tissue cancers: DS Nordion a Canadian company whose
microsphere product is named "Therasphere"; Sirtex, an Australian company with
approximately $11,000,000 in assets, whose microsphere product is named
"SIR-Spheres"; and pSivida, a British company.
We believe that other companies are capable of developing technology
that could, if embodied in a suitable product, compete with the IUTM product. We
also believe that one of those companies may have developed specifications for
such a product but that its plans for further development are now dormant. As
with any technology-based product, there is a risk that other, more advanced,
products will appear on the market.
INTELLECTUAL PROPERTY PROTECTION
We have been advised by IUTM that it intends to rely on patent laws,
software security measures, license agreements and nondisclosure agreements to
protect its products. No patent has yet been granted and there is no assurance
that any will be granted or that any part of the technology will be patentable.
Even if granted however, any patent may be limited in scope and patents issued
to others, or technologies owned by them, may result in competitive products
that do not infringe any patent and that may employ software for dose
calculation without infringing any patent that may be granted for the Oncosphere
technology.
EMPLOYEES
We currently have two part time employees: our Chief Financial
Officer, who is located in Michigan and our Chief Executive Officer who is
located in Arizona. We do not anticipate hiring additional employees until we
begin the marketing efforts referred to above.
ITEM 1A. RISK FACTORS
Anyone considering an investment in our company should read this
report carefully, noting the descriptions of the various risks and uncertainties
involved in our business, including but not limited to the following:
5
Need for Additional Capital. We will need additional funds to continue
our corporate existence and maintain our basic functions. We will need
substantial funds to finance our marketing activities if and when they commence.
Since our inception we have been dependent on obtaining operating capital from
private investors, including one present and one former Director. We may be
unable to raise additional capital on commercially acceptable terms, if at all,
and if we raise capital through additional equity financing, the ownership
interests of existing shareholders may be diluted. Our failure to generate
adequate funds would severely harm our business. See "MANAGEMENT'S DISCUSSION
AND ANALYSIS" below in this Report.
Reliance on Anthony Silverman's Financial Assistance. Since October
22, 2003, we have relied substantially on the advice and assistance of Mr.
Anthony Silverman, who became CEO and President on April 3, 2009, in structuring
our financing, identifying sources of funding and acting as such a source
himself. Mr. Silverman and his affiliates own 22,530,302 shares] of our common
stock (approximately 14.49% of the voting stock). Although we believe that Mr.
Silverman presently intends to continue rendering such assistance, there is no
assurance that this assistance will continue as before.
Delinquent SEC Filings. By letter dated August 12, 2009, the
Securities and Exchange Commission ("SEC") notified us that unless we become
current with our required public filings by August 27, 2009, the SEC may cause
the Company to be de-registered under the securities laws and that the SEC may
issue an order suspending public trading of the Company's securities. As a
result of preliminary conversations with the staff of the SEC, the Company
believes that additional time may be granted that will be sufficient for the
Company to be compliant with its filings. However, there is no assurance of that
outcome. Such de-registration and suspension of trading will seriously limit the
ability of investors to re-sell any of our shares held by them. In June, 2009,
we began an effort to achieve compliance with all reporting requirements and
those efforts were completed with the filing of this Report.
6
Short Term Indebtedness. The following table summarizes our required
current outstanding debt as of August 31, 2008, including our short-term notes
payable, short-term convertible notes payable, long-term convertible notes
payable and their respective due dates. To the extent the convertible notes are
not converted, funds for repayment will have to be raised through additional
debt or equity financings.
Accrued
-------
Due Date Interest Rate Amount Interest*** Total Owed Convertible/Non-Convertible
-------- ------------- ------ ----------- ---------- ---------------------------
03/31/2009(1) 10.00% $ 63,822 $ 7,012 $ 70,834 Convertible at $0.15 per share
03/31/2012(2) 12.00% 2,712 1,237 3,949 Convertible at $0.15 per share
12/4/2008 (3) 8.00% 125,000 12,548 137,548 Convertible at $0.15 per share
03/31/2009(4) 8.00% 75,000 12,784 87,784 Convertible at $0.15 per share
3/31/2009 (5) 6.00% 1,265,000 122,481 1,387,481 Convertible at $0.30 per share
1/22/2010 (6) 6.00% 30,000 3,847 33,847 Convertible at $0.30 per share
9/17/2009 6.00% 1,090,000 83,828 1,173,828 Convertible at $0.30 per share
---------------- ---------------- ----------------
$ 2,651,534 $ 243,737 $ 2,895,271
================ ================ ================
(1) Debt held by Anthony Silverman, our CEO, President and member of our Board
of Directors.
Principal and accrued interest converted 7/27/09 into 1,416,672 shares of
common stock.
(2) Debt held by Stanley Schloz, a former member of our Board of Directors.
Note extended 4/29/09.
(3) Amount currently in default. Investor verbally agreed to extend the note to
08/31/09. Currently we have not received the necessary written
documentation regarding that extension. Interest calculated through
8/31/09.
(4) Principal and accrued interest converted 7/27/09 into 1,755,673 shares of
common stock.
(5) Principal and accrued interest converted 7/27/09 into 27,749,616 shares of
common stock.
(6) Note extended 8/11/09.
*** Interest calculated to maturity or conversion
Technology Uncertainties. Our business is subject to the risks
inherent in any new technology company, including that the IUTM product will not
function as we expect, that successful commercial development may take
substantially more time and effort than anticipated, that IUTM may run out of
funds before development is complete and that a competitor's product may come to
the market before we are able to do so. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS" below in this Report.
Reliance on Key Personnel. Our success will largely depend upon our
ability to recruit and retain personnel with suitable marketing and management
experience. Competition for these personnel and relationships is intense and we
expect to compete with numerous pharmaceutical and biotechnology companies as
well as with universities and non-profit research organizations. We may not be
able to attract and retain qualified personnel.
Going Concern Qualification. We have disclosed in our financial
statements that they were prepared under the assumption that the Company will
continue as a going concern. We have incurred losses from operations over the
past several years and anticipate additional losses in the future. Our
independent auditors have included language in their report included on our 2008
financial statements that indicates that these matters raise doubt about our
ability to continue as a going concern. Our ability to continue as a going
concern is subject to our ability to obtain necessary funding from outside
sources, including obtaining additional funding from the sale of our securities
or obtaining loans from various financial sources where possible. The going
concern qualification increases the difficulty of meeting such goals.
Industry Intensely Competitive. The medical device industry is
intensely competitive. We will compete with both public and private medical
device, biotechnology and pharmaceutical companies that have been established
longer than we have, have a greater number of products on the market, have
greater financial and other resources and have other technological or
competitive advantages. We also compete in the development of technologies and
processes and in acquiring personnel and technology from academic institutions,
government agencies, and other private and public research organizations. We
cannot be certain that one or more of our competitors will not receive patent
protection that dominates, blocks or adversely affects our product development
or business will not benefit from significantly greater sales and marketing
capabilities or will not develop products that are accepted more widely than
ours.
7
Intellectual Property Risk. The patent positions of medical device
companies can be highly uncertain and involve complex legal and factual
questions. Patent rights, if granted, may not be upheld in a court of law if
challenged. Patent rights may not provide competitive advantages and may be
challenged, infringed upon or circumvented by competitors. Products cannot be
patented in all countries nor can any small company, such as IUTM and us afford
to litigate every potential violation worldwide. Because of the large number of
patent filings in the medical device and biotechnology field, competitors may
have filed applications or been issued patents and may obtain additional patents
and proprietary rights relating to products or processes competitive with or
similar to ours. We cannot be certain that U.S. or foreign patents do not exist
or will not be issued that would harm our ability to commercialize our products
and product candidates.
Exposure to Product Liability Claims. The design, testing,
development, manufacture, and marketing of products involve an inherent risk of
exposure to product liability claims and related adverse publicity. Insurance
coverage is expensive and difficult to obtain and, in the future, we may be
unable to obtain coverage on acceptable terms, if at all. If we are unable to
obtain sufficient insurance at an acceptable cost or if a successful product
liability claim is made against us, whether fully covered by insurance or not,
our business could be harmed.
Exposure to Environmental Risks. Our business as contemplated to be
carried on involves the controlled use of hazardous materials, chemicals,
biologics, and radioactive compounds. Manufacturing is extremely susceptible to
product loss due to radioactive, microbial, or viral contamination; material
equipment failure; or vendor or operator error; or due to the very nature of the
product's short half-life. Although we believe that when we become operational,
our safety procedures for handling and disposing of such materials will comply
with state and federal standards there will always be the risk of accidental
contamination or injury. In addition, radioactive, microbial, or viral
contamination may cause the closure of the respective manufacturing facility for
an extended period. By law, radioactive materials may only be disposed of at
state-approved facilities. If we were to become liable for an accident, or if we
were to suffer an extended facility shutdown, we could incur significant costs,
damages, and penalties that could harm our business.
Uncertainty as to our Ability to Initiate Operations and Manage
Growth. Our efforts to carry out plans to market medical products will result in
new and increased responsibilities for management personnel and will place a
strain upon our management, financial systems, and resources. We may be required
to continue to implement and to improve our management, operating and financial
systems, procedures and controls on a timely basis and to expand, train,
motivate and manage our employees. There can be no assurance that our personnel,
systems, procedures, and controls will be adequate to support our future
operations.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None, except as discussed above with respect to delinquent reports.
ITEM 2. PROPERTIES
Our Chief Executive Officer works from his home in Scottsdale, Arizona
and our Chief Financial Officer maintains all the corporate records at his home
in Grand Rapids, Michigan. We maintained our corporate headquarters for the
Company in approximately 2,000 square feet of office space at 3725
Lawrenceville-Suwannee Road, Suwanee, Georgia, 30024 until January 31, 2008. We
leased office space there at a monthly rent of $2,567. We maintained an office
in approximately 1,000 square feet located at 2850 Thornhills Ave. SE, Suite
104, Grand Rapids, MI 49546, at a monthly rent of $1,465 under a lease that
expired October 31, 2007. Currently we have no premises lease obligations.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
8
PART II
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
ISSUER PURCHASES OF EQUITY SECURITIES
Common Stock
Our common stock is traded on the Pink Sheets beginning January 2009
when we were delisted from the OTC Bulletin Board. Our common shares trade on
the Pink Sheets under the symbol "OCLG.PK". Prior to January 2009, the Company's
common stock was quoted on the OTC Bulletin Board under the symbol "OCLG.OB" The
high and low bid prices of the Company's common stock as reported for the last
two fiscal years, by fiscal quarter (i.e. first quarter = September 1 through
November 30) were as follows:
High Low
---- ---
FISCAL YEAR ENDED:
August 31, 2008
First Quarter $ 0.26 $ 0.17
Second Quarter $ 1.30 $ 0.15
Third Quarter $ 0.44 $ 0.27
Fourth Quarter $ 0.35 $ 0.28
FISCAL YEAR ENDED:
August 31, 2007
First Quarter $ 0.40 $ 0.20
Second Quarter $ 0.49 $ 0.37
Third Quarter $ 0.43 $ 0.20
Fourth Quarter $ 0.42 $ 0.20
The closing stock price of our common stock on September 8, 2009, was
$0.03.
Holders
As of September 8, 2009, the Company had 270 shareholders of record of
its common stock. As of September 8, 2009, 1,305 owners of our common stock held
them in the names of various broker-dealers. As of September 8, 2009, the
Company had one Unit holder of record. As of September 8, 2009, the Company had
one owner of Units who held them in the names of various brokers.
Dividends
The Company has never declared any cash dividends on any of the
Company's equity securities and currently plans to retain future earnings, if
any, for business growth.
Stock Performance Graph
We are a smaller reporting company, as defined in Rule 12b-2
promulgated under the Securities Exchange Act of 1934, and accordingly we are
not required to provide the information.
Recent Sales of Unregistered Securities
The following table contains information regarding our sales of
unregistered securities during the past three fiscal years. We have made
additional sales of unregistered securities subsequent to our year end. See
"LIQUIDITY AND CAPITAL RESOURCES." The securities sold were a combination of
promissory notes convertible into shares of our common stock, conversion of Unit
preferred shares into common stock, and sales of common stock to accredited
investors. The principal amount of each Note is equal to the amount borrowed
from the investor.
9
- ------------------------- ------------------------------- ----------------------------------------------------------------
Date of Issuance Principal Amount of Further Description and Remarks
Note(s)
- ------------------------- ------------------------------- ----------------------------------------------------------------
September , October, $1,090,000 During September through November 2007, we issued twenty-seven
November 2007 Convertible Promissory Notes in an aggregate principal amount
of $1,090,000. These Convertible Promissory Notes are due
September 17, 2009, bear interest at the rate of 6% per annum
and are convertible into our common stock at a rate of $0.30.
The Convertible Promissory Notes were issued in a private
offering of Units, each consisting of a Convertible Promissory
Note and a warrant for the purchase of the number of common
shares into which each Convertible Promissory Note is
convertible. The warrants expire on September 17, 2009 and
have an exercise price of $0.50 per share. We recognized a
discount of $180,330 related to the warrants and a beneficial
conversion feature of $318,330 related to these notes.
- ------------------------- ------------------------------- ----------------------------------------------------------------
- ------------------------- ------------------------------- ----------------------------------------------------------------
Date of Sale Proceeds from Sale Further Description and Remarks
- ------------------------- ------------------------------- ----------------------------------------------------------------
June 27, 2008 $9,400 On June 27, 2008, Holders of 47,000 Units contributed $9,400
to convert 47,000 shares of preferred stock into 94,000 shares
of common stock.
- ------------------------- ------------------------------- ----------------------------------------------------------------
July 21, 2008 $15,000 On July 21, 2008, the Company sold 1,500,000 shares of common
stock to an accredited investor at $0.01 per share.
- ------------------------- ------------------------------- ----------------------------------------------------------------
August 5, 2008 $15,000 On August 5, 2008, the Company sold 1,500,000 shares of common
stock to its CEO, Anthony Silverman at a price of $0.01 per
share.
- ------------------------- ------------------------------- ----------------------------------------------------------------
October 13, 2008 $15,000 On October 13, 2008, the Company sold 1,500,000 shares of
common stock to an accredited investor at $0.01 per share.
- ------------------------- ------------------------------- ----------------------------------------------------------------
October 13, 2008 $15,000 On October 13, 2008, the Company sold 1,500,000 shares of
common stock to its CEO, Anthony Silverman at a price of $0.01
per share.
- ------------------------- ------------------------------- ----------------------------------------------------------------
December 1, 2008 $15,000 On December 1, 2008, the Company sold 1,500,000 shares of
common stock to an accredited investor at $0.01 per share.
- ------------------------- ------------------------------- ----------------------------------------------------------------
January 13, 2009 $3,000 On January 13, 2009, the Company sold 300,000 shares of common
stock to an accredited investor at $0.01 per share.
- ------------------------- ------------------------------- ----------------------------------------------------------------
March 17, 2009 $15,000 On March 17, 2009, the Company sold 1,000,000 shares of common
stock to an accredited investor at $0.015 per share.
- ------------------------- ------------------------------- ----------------------------------------------------------------
May 13, 2009 $30,000 On May 13, 2009, the Company sold 2,000,000 shares of common
stock to three accredited investors at $0.015 per share.
- ------------------------- ------------------------------- ----------------------------------------------------------------
May 22, 2009 $15,000 On May 22, 2009, the Company sold 1,000,000 shares of common
stock to an accredited investor at $0.015 per share.
- ------------------------- ------------------------------- ----------------------------------------------------------------
June 13, 2009 $30,000 On June 13, 2009, the Company sold 1,500,000 shares of common
stock to an accredited investor at $0.02 per share.
- ------------------------- ------------------------------- ----------------------------------------------------------------
September 11, 2009 $25,000 On September 11, 2009, the Company issued a 90-day $25,000
promissory note to Anthony Silverman, its CEO and President.
The note bears an interest rate of 6%.
- ------------------------- ------------------------------- ----------------------------------------------------------------
September 30, 2009 $25,000 On September 30, 2009, the Company sold 1,250,000 shares of
common stock to an accredited investor at $0.02 per share.
- ------------------------- ------------------------------- ----------------------------------------------------------------
10
Issuer Repurchases of Equity Securities
We did not repurchase any of our equity securities during the fourth
quarter of the year ended August 31, 2008.
Transfer Agent
Our transfer agent and registrar are American Stock Transfer and Trust
Co., 6201 15th Avenue, 3rd Floor, Brooklyn, NY 11219, Telephone (718) 921-8210.
Securities authorized for issuance under equity compensation plans
EQUITY COMPENSATION PLAN(1)
Number of Securities Number of Securities
To Be Issued Upon Weighted Average Remaining Available
Exercise of Outstanding Exercise Price of For Future
Options Outstanding Options Issuance Under Plan
------- ------------------- -------------------
Equity compensation plans
approved by stockholders....... 4,402,526 $0.69 6,781,976
Equity compensation plans
not approved by stockholders:.. -- $0.00 --
------------------- ------------------- -------------------
TOTAL 4,402,526 $0.69 6,781,976
=================== =================== ====================
(1) We maintain a 2000 Stock Incentive Plan under which we have
3,610,311 shares of common stock available for future issuance as of August 31,
2008. Under the 2000 Stock Incentive Plan, the sale price of the shares of
common stock is equal to the fair market value of such shares on the date of the
option grant. In January 2007, our shareholders approved an increase in the
number of shares authorized for our 2000 Stock Incentive Plan to 7,500,000 from
5,000,000. We also maintain a 1997 Stock Incentive Plan under which we have
3,171,665 shares of common stock available for future issuance as of August 31,
2008. The sale price of the shares of common stock available under our 1997
Stock Incentive Plan is equal to the fair market value of such shares on the
date of grant. Both of these plans have been approved by our shareholders.
For a description of our 1997 and 2000 Stock Incentive Plans, please
see the description set forth in Note 10 of our Consolidated Financial
Statements.
11
ITEM 6. SELECTED FINANCIAL DATA
We are a smaller reporting company, as defined by Rule 12b-2
promulgated under the Securities Exchange Act of 1934, and accordingly we are
not required to provide the information.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction
with our Consolidated Financial Statements and notes appearing elsewhere in this
Report.
CRITICAL ACCOUNTING POLICIES
"Management's Discussion and Analysis of Financial Condition and
Results of Operations " ("MDA") discusses our consolidated financial statements
that have been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of these financial
statements requires us to make estimates and assumptions that affect the
reported amount of assets and liabilities at the date of the financial
statements, the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. On an on-going basis, we evaluate our estimates and
judgments, including those related to research and development costs, deferred
income taxes and the carrying value of long-lived assets. We base our estimates
and judgments on historical experience and on various other factors that are
believed to be reasonable under the circumstances. The result of these estimates
and judgments form the basis for making conclusions about the carrying value of
assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions; changes in these estimates as a result of future events may have a
material effect on the Company's financial condition. The SEC suggests that all
registrants list their most "critical accounting policies" in MDA. A critical
accounting policy is one which is both important to the portrayal of the
Company's financial condition and results of operations and requires
management's most difficult, subjective or complex judgments, often as a result
of the need to make estimates about the effect of matters that are inherently
uncertain. Management believes the following critical accounting policies affect
its more significant judgments and estimates in the preparation of its
consolidated financial statements: The carrying value of long-lived assets,
stock based compensation, deferred income tax valuation allowances, pending or
threatening litigation and the allocation of assets acquired and liabilities
assumed in acquisitions.
Carrying value of long-lived assets. The Company periodically
evaluates whether events and circumstances have occurred that may warrant
revision of the estimated useful life of property and equipment as well as other
long-lived assets. We record property and equipment at cost with depreciation
provided for on the straight-line method over the estimated useful lives of the
related assets. Impairment loss, if any, is measured by the amount which the
carrying amount of the assets exceeds the fair value of the assets.
Stock-based compensation. Effective September 1, 2006, we adopted the
fair value recognition provisions of SFAS 123(R), using the modified prospective
transition method. Under that transition method, employee compensation cost
recognized in fiscal 2007 includes: (i) compensation cost for all share-based
payments granted prior to, but not yet vested as of September 1, 2006, based on
the grant date fair value estimated in accordance with the original provisions
of SFAS 123 and (ii) compensation cost for all share-based payments granted
subsequent to September 1, 2006, based on the grant date fair value estimated in
accordance with the provisions of SFAS 123(R). Results for prior periods have
not been restated. Stock-based employee compensation expense is recognized as a
component of general and administrative expense in the Statement of Operations.
The fair value of options granted is estimated using the Black-Scholes option
pricing model. This model utilizes the following factors to calculate the fair
value of options granted: (i) annual dividend yield, (ii) weighted-average
expected life, (iii) risk-free interest rate and (iv) expected volatility.
Expected volatility is based primarily on historical volatility. Historical
volatility is computed using weekly average pricing observations for an
applicable historic period. We believe this method produces an estimate that is
representative of our expectations of the future volatility over the expected
term of our options.
Deferred tax assets. In assessing the realizability of deferred tax
assets, management assesses the likelihood that deferred tax assets will be
recovered from future taxable income, and to the extent that recovery is not
likely a valuation allowance is established. We adjust the valuation allowance
in the period management determines it is more likely than not that deferred tax
assets will or will not be realized. To date, we have fully reserved for our
deferred tax assets based primarily on our history of recurring losses.
12
Reserves related to pending or threatening litigation. We previously
had a dispute with Softalk, which is more fully described in the notes to our
Consolidated Financial Statements. This dispute had been dormant and
accordingly, we did not recognize a liability for this dispute in fiscal 2006 or
fiscal 2007. This matter was resolved pursuant to a Settlement Agreement and
Mutual Release dated June 20, 2007 whereunder Softalk paid the Company $10,000
and each party released the other from all prior contractual agreements made
between the parties and agreed to a full settlement and discharge and mutual
release of all existing and potential claims.
RESULTS OF OPERATIONS
Comparison of the two years ended August 31, 2008 and 2007
- ----------------------------------------------------------
General and Administrative Expense
- -
General and administrative expenses included in our results from
continuing operations include legal and accounting fees, license fees, travel,
payroll and related expenses, directors and officers insurance, and public
relations expenses. These expenses relate primarily to general corporate
overhead and accordingly are segregated from general and administrative expenses
that related directly to our telephone business and medical device business,
which are included in the results from discontinued operations. General and
administrative expenses that are specific to our telephone business include bad
debt expense, agent's commissions, outside services, postage, web-hosting
expense, phone licenses, customer support salaries, and commodity and excise
taxes. General and administrative expenses that are specific to our medical
device business include salaries, press releases, office expense, legal and
accounting, telephone expense, rent expense and licenses and fees.
General and administrative expense decreased to approximately $588,000
during fiscal 2008, from approximately $785,000, a decrease of 25% or $197,000
from the comparable period in fiscal 2007. Cash based compensation and other
related payroll expenses increased to approximately $175,228 during fiscal 2008,
from approximately $125,000 during fiscal 2007. This increase was due to
increased compensation from an accrual of salary for our CEO. Stock-based
compensation expense decreased to approximately $36,000 during fiscal 2008, from
$222,000 during fiscal 2007. This decrease is due to fewer stock options granted
during fiscal 2008. Marketing and Consulting expense decreased to approximately
$24,000 during fiscal 2008, from approximately $48,000 during fiscal 2007. This
decrease was due primarily to the suspension of operations resulting in fewer
consulting contracts. Press release and board meeting expense decreased to
approximately $7,000 during fiscal 2008, from approximately $63,000 during
fiscal 2007 due primarily to reduced board meeting travel and an increase in
telephonic board meetings. Accounting expense decreased to approximately
$123,000 during fiscal 2008, from approximately $139,000 during fiscal 2007 as a
result of no business combinations during fiscal 2008.
Depreciation and Amortization
Depreciation and amortization decreased to approximately $2,000 during
fiscal 2008, from approximately $3,000 during fiscal 2007. The decrease in
depreciation and amortization from fiscal 2007 to fiscal 2008 was the result of
assets becoming fully depreciated during fiscal 2008.
Interest Income
Interest income decreased to $332 during fiscal 2008, from $746, a
decrease of 55% from fiscal 2007. The decrease is the result of carrying lower
cash balances during fiscal 2008.
Interest and Finance Charges
Interest and finance charges increased to approximately $1,631,000
during fiscal 2008 from approximately $1,311,000, an increase of 24% from fiscal
2007. The increase is primarily attributable to interest accrued on the issuance
of convertible notes payable in connection with the Company's financing
transactions and the amortization of discounts on convertible notes payable.
A summary of interest and finance charges is as follows:
13
Twelve Months Ended
August 31, 2008 and 2007
----------------------------------
2008 2007
----------- -----------
Interest expense on nonconvertible notes.......... $ 482 $ 35,261
Interest expense on convertible notes payable..... 278,713 151,109
Amortization of note payable discounts............ 1,178,209 1,027,756
Other interest and finance charges................ 173,480 96,951
----------- -----------
Total interest and finance charges................ $ 1,630,884 $ 1,311,077
+ =========== ===========
We had outstanding convertible notes payable during both fiscal 2008
and fiscal 2007. A discount to those notes was recorded due to the value of
warrants and the beneficial conversion terms inherent to these convertible
notes. The amortization of these discounts was recorded as interest and finance
charge expense over the life of the notes. See Note 9 of Notes to Consolidated
Financial Statements included in Item 7 in this Report. Cash paid for interest
and finance charges increased by approximately 108% from fiscal 2007 to fiscal
2008 because of increased interest relating to short-term bridge financing which
was paid off. The overall increase in interest expense resulted from increases
in the balances of outstanding convertible notes payable.
Income Taxes
At August 31, 2008, the Company had federal net operating loss
carryforwards totaling approximately $32,600,000 and state net operating loss
carryforwards of approximately $2,400,000. The federal net operating loss
carryforwards expire in various amounts beginning in 2009 and ending in 2028.
Due to our history of incurring losses from operations, we have provided a
valuation allowance for our net operating loss carryforward.
Discontinued Operations
Loss from discontinued operations for our telephone business was nil
during fiscal 2008 compared to $93,178 during fiscal 2007. The decrease in loss
was due to the disposal of our telephone business in February 2007.
Operating results of our telephone business are summarized as follows:
Year Ended August 31,
-----------------------------
2008 2007
------------ ------------
Revenue........................................... $ -- $ 351,568
Cost of Revenue................................... -- 210,545
------------ ------------
Gross margin................................... -- 141,023
Other operating expenses.......................... -- 234,201
------------ ------------
Loss from discontinued operations.............. -- (93,178)
Loss on disposal of discontinued operations.... -- (79)
------------ ------------
$ -- $ (93,257)
============ ============
14
Loss from discontinued operations for our medical device business
decreased to $1,058,006 for fiscal 2008, from $5,464,607 during fiscal 2007. The
decrease was a result of suspending operations on December 31, 2007.
Year Ended August 31,
------------------------------
2008 2007
------------ ------------
Operating expenses:
General and administrative................. $ 130,817 $ 484,080
Research and development................... 864,513 4,961,531
Depreciation and amortization.............. 40,168 18,256
------------ ------------
Total operating expenses................... 1,035,498 5,463,867
------------ ------------
Loss from operations....................... (1,035,498) (5,463,867)
------------ ------------
Other income (expense):
Interest income............................ 270 10,078
Interest and finance charges............... -- (10,864)
Loss on disposal of assets................. (13,890) 128
Loss on impairment......................... (10,000) --
Other income (expense)..................... 1,112 (82)
------------ ------------
Total other income (expense)............... (22,508) (740)
------------ ------------
Net loss from discontinued operations...... $ (1,058,006) $ (5,464,607)
============ ============
Research and development expense decreased to approximately $864,000
during fiscal 2008, from approximately $4,962,000, a decrease of $4,098,000 from
fiscal 2007 due primarily to the suspension of operations on December 31, 2007.
Research and development expense relates to our Medical Device Business, which
was acquired during July 2006.
Liquidity and Capital Resources
We were unable to obtain the financing necessary to continue
operations after December 31, 2007. Consequently, we terminated the employment
of all of our personnel, effective as of that date. We anticipate that we will
require $250,000 to operate for the next twelve months. These funds are expected
to be raised through small private placements, although there is no assurance of
any success in doing so. We plan to engage in discussions with IUTM in the next
two months with a view to establishing the nature of our future relationships
and to develop detailed plans for future operations and for obtaining the
necessary financing. Any future operations will depend on our ability to raise
sufficient funds from investors.
Our operating losses to date have been covered by equity and debt
financing obtained from private investors, including certain present and former
members of our Board of Directors. We never achieved positive cash flow or
profitability in our telephone business because we did not generate a volume of
business sufficient to cover our overhead costs. We also raised additional
amounts to fund our medical device business development which was discontinued
as a result of not obtaining financing to cover those operations. Our financial
statements contain explanatory language related to our ability to continue as a
going concern and our auditors have qualified their opinion on our Consolidated
Financial Statements for the year ended August 31, 2008, included as a part of
this Report, reflecting uncertainty as to our ability to continue in business as
a going concern.
On August 31, 2008, we had cash and cash equivalents of $9,912. We
have historically relied upon the issuance of debt or equity in order to finance
our operations. Our operating losses to date have been covered by equity and
debt financing obtained from private investors, including certain current and
former members of our Board of Directors.
15
The following table summarizes our required current outstanding debt
as of August 31, 2008, including our short-term notes payable, short-term
convertible notes payable, long-term convertible notes payable and their
respective due dates. To the extent the convertible notes are not converted,
funds for repayment will have to be raised through additional debt or equity
financings.
Accrued
-------
Due Date Interest Rate Amount Interest*** Total Owed Convertible/Non-Convertible
-------- ------------- ------ ----------- ---------- ---------------------------
03/31/2009(1) 10.00% $ 63,822 $ 7,012 $ 70,834 Convertible at $0.15 per share
03/31/2012(2) 12.00% 2,712 1,237 3,949 Convertible at $0.15 per share
12/4/2008 (3) 8.00% 125,000 12,548 137,548 Convertible at $0.15 per share
03/31/2009(4) 8.00% 75,000 12,784 87,784 Convertible at $0.15 per share
3/31/2009 (5) 6.00% 1,265,000 122,481 1,387,481 Convertible at $0.30 per share
1/22/2010 (6) 6.00% 30,000 3,847 33,847 Convertible at $0.30 per share
9/17/2009 6.00% 1,090,000 83,828 1,173,828 Convertible at $0.30 per share
---------------- ---------------- ----------------
$ 2,651,534 $ 243,737 $ 2,895,271
================ ================ ================
(1) Debt held by Anthony Silverman, our CEO, President and member of our Board
of Directors.
Principal and accrued interest converted 7/27/09 into 1,416,672 shares of
common stock.
(2) Debt held by Stanley Schloz, a former member of our Board of Directors.
Note extended 4/29/09.
(3) Amount currently in default. Investor verbally agreed to extend the note to
08/31/09. Currently we have not received the necessary written
documentation regarding that extension. Interest calculated through
8/31/09.
(4) Principal and accrued interest converted 7/27/09 into 1,755,673 shares of
common stock.
(5) Principal and accrued interest converted 7/27/09 into 27,749,616 shares of
common stock.
(6) Note extended 8/11/09.
*** Interest calculated to maturity or conversion
On June 2, 2008, the Company completed a program, which it began in
May 2008, to extend the due dates of its outstanding promissory notes due on or
before that date. The aggregate principal amount of those notes was $2,005,450.
The holders of all of the notes entered into agreements whereunder the dates on
which payment is due is extended until December 4, 2008, the price at which
amounts due under the notes may be converted to shares of common stock was
reduced to $0.15 per share; provided that any conversion effected on or before
June 16, 2008 would be at a price of $0.05 per share.
Inflation and Other Factors
The Company's operations are influenced by general economic trends and
technology advances in the medical industries.
Our activities in the development, manufacture and sale of cancer
therapy products are, and will be subject to extensive laws, regulations,
regulatory approvals and guidelines. Within the United States, therapeutic
radiological devices must comply with the U.S. Federal Food, Drug and Cosmetic
Act, which is enforced by the FDA. We are also required to adhere to applicable
FDA regulations for Good Manufacturing Practices, including extensive record
keeping and periodic inspections of manufacturing facilities. Medical devices
such as the Oncosphere cannot be used or sold unless they are approved for
specified purposes by the FDA. There are two levels of FDA approval. The first
is the granting of approval to evaluate use of the device in human subjects
(through an IDE); the second is obtaining approval to market the device to the
public for the treatment of specified diseases (PMA).
Our business involves the importing, exporting, design, manufacture,
distribution, use and storage of beta and gamma emitting radioisotopes. These
activities in the United States are subject to federal, state and local rules
relating to radioactive material promulgated by the Nuclear Regulatory
Commission ("NRC"), and states that have subscribed to certain standards and
local authorities, known as "Agreement States" In addition, we must comply with
16
NRC, state and U.S. Department of Transportation requirements for labeling and
packaging shipments of radiation sources to hospitals or others users of our
devices. In order to market our devices commercially, we will be required to
obtain a sealed source device registration from Agreement States and/or the NRC,
depending on the states in which the device will be distributed.
Additionally, hospitals in the United States are required to have
radiation licenses to hold, handle and use radiation. Many hospitals and/or
physicians in the United States will be required to amend their radiation
licenses to include our isotopes before receiving and using them. Depending on
the state in which the hospital is located, the license amendment will be
processed by the responsible subscribing state department or agency or by the
NRC.
Obtaining such registration, approvals, and licenses can be
complicated and time consuming and there is no assurance that any of them can be
obtained.
Code of Ethics
Our Board of Directors has adopted a code of ethics that applies to
our principal executive officer, principal financial officer and to other
persons performing similar functions. The code of ethics is designed to deter
wrongdoing and to promote honest and ethical conduct, full, fair, accurate,
timely and understandable disclosure, compliance with applicable laws, rules and
regulations, prompt internal reporting of violations of the code and
accountability for adherence to the code. We will provide a copy of our code of
ethics, without charge, to any person upon receipt of written request fur such
delivered to our corporate headquarters. All such requests should be send to
Oncologix Tech, Inc., P.O. Box 8832, Grand Rapids, MI 49518-8832.
Off-Balance Sheet Arrangements
As of August 31, 2008 and 2007, we had no off-balance sheet
arrangements.
Recent Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 166 ("SFAS No. 166") "Accounting
for Transfers of Financial Assets - an amendment of SFAS No. 140" which improves
the relevance, representational faithfulness and comparability of the
information that a reporting entity provides in its financial statements about a
transfer of financial assets; the effects of a transfer on its financial
position, financial performance, and cash flows; and a transferor's continuing
involvement, if any, in transferred financial assets. This Statement has the
same scope as Statement 140. Accordingly, this Statement applies to all
entities. SFAS No. 166 must be applied as of the beginning of each reporting
entity's first annual reporting period that begins after November 15, 2009, for
interim periods within that first annual reporting period and for interim and
annual reporting periods thereafter. We do expect the adoption of SFAS No. 166
to have a material effect on our financial condition or results of operations.
In May 2009, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 165 ("SFAS No. 165") "Subsequent Events"
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued or
are available to be issued. In particular, this Statement sets forth: (1) The
period after the balance sheet date during which management of a reporting
entity should evaluate events or transactions that may occur for potential
recognition; (2) The circumstances under which an entity should recognize events
or transactions occurring after the balance sheet date in its financial
statements; (3) The disclosures that an entity should make about events or
transactions that occurred after the balance sheet date. In accordance with this
Statement, an entity should apply the requirements to interim or annual
financial periods ending after June 15, 2009. We do expect the adoption of SFAS
No. 165 to have a material effect on our financial condition or results of
operations.
In May 2008, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 162 ("SFAS 162") "The Hierarchy of
Generally Accepted Accounting Principles" which identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of non-governmental entities that are
presented in conformity with generally accepted accounting principles (GAAP) in
the United States. This statement is effective 60 days following the SEC's
approval of the PCAOB amendment to AU Section 411, The Meaning of Present Fairly
in Conformity with Generally Accepted Accounting Principles.
17
In December 2007, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 160 ("SFAS 160")
"Non-controlling Interest in Consolidated Financial Statements - an amendment of
ARB No. 51" which improves the relevance, comparability and transparency of the
financial information that a reporting entity provides in its consolidated
financial statements by establishing accounting and reporting standards that
require: a) the ownership interest in subsidiaries held by parties other than
the parent be clearly identified, labeled and presented in the consolidated
financial statements; b) the amount of consolidated net income attributable to
the parent and to the non-controlling interest be clearly identified and
presented on the face of the consolidated statement of income; c) changes in a
parents controlling interest in its subsidiary are to be accounted for
consistently; d) when a subsidiary is deconsolidated, any retained
non-controlling equity investment in the former subsidiary be initially measured
at fair value; and entities provide sufficient disclosures that clearly identify
and distinguish between the interest of the parent and the interest of the
non-controlling owners. SFAS No. 160 is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15, 2008. We
do not expect the adoption of SFAS No. 160 to have a material effect on our
financial condition or results of operations.
ITEM 7A. QUATATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We are a smaller reporting company, as defined in Rule 12b-2
promulgated under the Securities Exchange Act of 1934, and accordingly, we are
not required to provide the information required by this Item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Oncologix Tech, Inc.
Consolidated Financial Statements
Year Ended August 31, 2008 and 2007
Contents
Report of Chisholm, Bierwolf, Nilson & Morrill, LLC, Independent
Registered Public Accounting Firm F-1
Report of Semple, Marchal & Cooper, LLP, Independent Registered
Public Accounting Firm F-2
Audited Financial Statements
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Changes in Stockholders' Deficit F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
18
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To The Stockholders and Board of Directors of
Oncologix Tech, Inc.
Grand Rapids, Michigan
We have audited the accompanying consolidated balance sheet of
Oncologix Tech, Inc. (the "Company") as of August 31, 2008 and the related
consolidated statements of operations, changes in stockholders' equity (deficit)
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
controls over financial reporting. Our audit includes consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Oncologix Tech, Inc. as of August 31, 2008, and the results of its operations
and its cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
15 to the consolidated financial statements, the Company has suffered recurring
losses from operations and has a working capital deficit as of August 31, 2008.
These matters raise substantial doubt about the Company's ability to continue as
a going concern. Management's plans in regard to these matters are also
described in Note 16. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Chisholm, Bierwolf, Nilson & Morrill
- -------------------------------------------------
CHISHOLM, BIERWOLF, NILSON & MORRILL, LLC
Bountiful, Utah
October 28, 2009
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To The Stockholders and Board of Directors of
Oncologix Tech, Inc.
Grand Rapids, Michigan
We have audited the accompanying consolidated balance sheet of
Oncologix Tech, Inc. (the "Company") as of August 31, 2007 and the related
consolidated statements of operations, changes in stockholders' equity (deficit)
and cash flows for the year ended August 31, 2007 . These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
controls over financial reporting. Our audits include consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Oncologix Tech, Inc. as of August 31, 2007, and the results of its operations
and its cash flows for the year ended August 31, 2007, in conformity with
accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
16 to the consolidated financial statements, the Company has suffered recurring
losses from operations and has a working capital deficit as of August 31, 2007.
These matters raise substantial doubt about the Company's ability to continue as
a going concern. Management's plans in regard to these matters are also
described in Note 16. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ SEMPLE, MARCHAL & COOPER, LLP
- ----------------------------------
SEMPLE, MARCHAL & COOPER, LLP
Phoenix, Arizona
December 12, 2007
F-2
ONCOLOGIX TECH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 2008 AND 2007
August 31, August 31,
------------ ------------
2008 2007
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents ................................................................... $ 9,912 $ 141,691
Prepaid expenses and other current assets ................................................... 6,659 10,149
Prepaid commissions ......................................................................... 75,511 117,346
Current assets of discontinued operations ................................................... -- 104,952
------------ ------------
Total current assets .................................................................... 92,082 374,138
Property and equipment (net of accumulated depreciation
of $18,679 and $22,477) ..................................................................... 4,527 9,781
Deposits and other assets ........................................................................ 2,691 19,169
Longterm assets of discontinued operations ....................................................... 141,017 209,991
------------ ------------
Total assets ....................................................................... $ 240,317 $ 613,079
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Convertible notes payable (net of discounts of $125,001 and $349,857) ....................... $ 1,372,711 $ 850,143
Convertible notes payable related parties .................................................. 63,822 280,450
Notes payable related parties .............................................................. -- 600,000
Accounts payable and other accrued expenses ................................................. 268,886 46,321
Accrued interest payable .................................................................... 124,548 132,921
Current liabilities of discontinued operations .............................................. 95,349 40,018
------------ ------------
Total current liabilities ............................................................... 1,925,316 1,949,853
Convertible notes payable (net of discounts of $279,212 and $606,585) ............................ 810,788 688,415
------------ ------------
Total liabilities .................................................................. 2,736,104 2,638,268
------------ ------------
Stockholders' Deficit:
Preferred stock, par value $.001 per share; 10,000,000 shares authorized
295,862 and 443,162 shares issued and outstanding at August 31, 2008 and 2007,
respectively ............................................................................ 296 443
Common stock, par value $.001 per share; 200,000,000 shares authorized;
136,117,314 and 93,357,986 shares issued at August 31, 2008 and 2007,
respectively;
113,734,944 and 70,975,616 shares outstanding at August 31, 2008 and 2007,
respectively ............................................................................ 113,735 70,976
Additional paid-in capital .................................................................. 51,889,552 47,805,282
Accumulated deficit ......................................................................... (54,499,370) (49,908,557)
Common stock subscribed, underlying common shares of 0 and 22,689, respectively ............. -- 6,667
------------ ------------
Total stockholders' deficit ........................................................ (2,495,787) (2,025,189)
------------ ------------
Total liabilities and stockholders' deficit ........................................ $ 240,317 $ 613,079
============ ============
See accompanying notes to consolidated financial statements.
F-3
ONCOLOGIX TECH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended August 31,
----------------------------
2008 2007
------------ ------------
Operating expenses:
General and administrative ...................... $ 588,185 $ 785,722
Depreciation and amortization ................... 2,060 2,658
------------ ------------
Total operating expenses ........................ 590,245 788,380
------------ ------------
Loss from operations ............................ (590,245) (788,380)
------------ ------------
Other income (expense):
Interest income ................................. 332 746
Interest and finance charges..................... (1,630,884) (1,311,077)
Conversion expense .............................. (1,303,625) --
Other income (expense) .......................... (8,385) 10,363
------------ ------------
Total other income (expense) .................... (2,942,562) (1,299,968)
------------ ------------
Net loss from continuing operations.............. (3,532,807) (2,088,348)
------------ ------------
Discontinued operations:
Operating loss from discontinued operations ..... (1,058,006) (5,557,785)
Loss on disposal of discontinued operations ..... -- (79)
------------ ------------
Net loss from discontinued operations ........... (1,058,006) (5,557,864)
------------ ------------
Net loss .......................................... $ (4,590,813) $ (7,646,212)
============ ============
Loss per common share, basic and diluted:
Continuing operations ....................... $ (0.04) $ (0.03)
Discontinued operations ..................... (0.01) (0.09)
------------ ------------
$ (0.05) $ (0.12)
============ ============
Weighted average number of shares
outstanding basic and diluted .................. 80,615,046 66,454,700
============ ============
See accompanying notes to consolidated financial statements.
F-4
ONCOLOGIX TECH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
Preferred Stock Common Stock
---------------------------- ---------------------------
Shares Amount Shares Amount
------------ ------------ ------------ ------------
Balance, August 31, 2006 ....... 443,162 $ 443 60,259,793 $ 60,260
Stock options exercised ........ -- -- 52,000 52
Stock based compensation ....... -- -- -- --
Issuance of escrow shares -
JDA .......................... -- -- 7,460,790 7,461
Issuance of stock for services . -- -- 272,384 272
Conversion of notes payable .... -- -- 2,930,649 2,931
Beneficial conversion feature
and warrants issued -
convertible notes payable .... -- -- -- --
Net loss ....................... -- -- -- --
------------ ------------ ------------ ------------
Balance, August 31, 2007 ....... 443,162 443 70,975,616 70,976
Stock options exercised ........ -- -- 50,000 50
Stock based compensation ....... -- -- -- --
Issuance of stock for unit
conversions .................. (147,300) (147) 294,600 295
Issuance of stock for services . -- -- 55,102 55
Issuance of stock for interest . -- -- 65,707 65
Issuance of stock purchased .... -- -- 3,000,000 3,000
Conversion of notes payable .... -- -- 21,400,467 21,401
Conversion of notes payable -
related parties .............. -- -- 17,893,452 17,893
Issuance of warrants for
services ..................... -- -- -- --
Beneficial conversion feature
stock issued for interest .. -- -- -- --
Beneficial conversion feature
and warrants issued -
convertible notes payable .. -- -- -- --
Beneficial conversion feature -
Induced conversion expense
notes payable .............. -- -- -- --
Net loss ....................... -- -- -- --
------------ ------------ ------------ ------------
Balance, August 31, 2008 ....... 295,862 $ 296 113,734,944 $ 113,735
============ ============ ============ ============
F-5
ONCOLOGIX TECH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
(CONTINUED)
Additional Common
Paid-in Accumulated Stock
Capital Deficit Subscribed Total
------------ ------------ ------------ ------------
Balance, August 31, 2006 ....... $ 41,599,814 $(42,262,345) $ -- $ (601,828)
Stock options exercised ........ 9,073 -- -- 9,125
Stock based compensation ....... 222,057 -- -- 222,057
Issuance of escrow shares -
JDA .......................... 3,349,895 -- -- 3,357,356
Issuance of stock for services . 85,407 -- 6,667 92,346
Conversion of notes payable .... 583,199 -- -- 586,130
Beneficial conversion feature
and warrants issued -
convertible notes payable .... 1,955,837 -- -- 1,955,837
Net loss ....................... -- (7,646,212) -- (7,646,212)
------------ ------------ ------------ ------------
Balance, August 31, 2007 ....... 47,805,282 (49,908,557) 6,667 (2,025,189)
Stock options exercised ........ 11,450 -- -- 11,500
Stock based compensation ....... 36,267 -- -- 36,267
Issuance of stock for unit
conversions .................. 29,312 -- -- 29,460
Issuance of stock for services . 17,045 -- (6,667) 10,433
Issuance of stock for interest . 19,647 -- -- 19,712
Issuance of stock purchased .... 27,000 -- -- 30,000
Conversion of notes payable .... 1,132,480 -- -- 1,153,881
Conversion of notes payable -
related parties .............. 876,779 -- -- 894,672
Issuance of warrants for
services ..................... 4,686 -- -- 4,686
Beneficial conversion feature
stock issued for interest .. 2,320 -- -- 2,320
Beneficial conversion feature
and warrants issued -
convertible notes payable .. 623,659 -- -- 623,659
Beneficial conversion feature -
Induced conversion expense
notes payable .............. 1,303,625 -- -- 1,303,625
Net loss ....................... -- (4,590,813) -- (4,590,813)
------------ ------------ ------------ ------------
Balance, August 31, 2008 ....... $ 51,889,552 $(54,499,370) $ -- $ (2,495,787)
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
F-5(Con't)
ONCOLOGIX TECH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended
August 31, August 31,
2008 2007
----------- -----------
Operating activities:
Net loss ................................................... $(4,590,813) $(7,646,212)
Net loss from discontinued operations .................. 1,058,006 5,557,864
----------- -----------
Net loss from continuing operations .................... (3,532,807) (2,088,348)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization .......................... 2,060 2,658
Loss on disposal of property and equipment ............. 3,194 --
Stock based compensation expense ....................... 36,267 307,736
Acquired inprocess research and development expense .... -- 3,357,356
Amortization of discount on notes payable and warrants . 1,175,890 1,027,755
Induced conversion expense notes payable ............... 1,303,625 --
Issuance of stock and warrants for services ............ 15,119 6,667
Beneficial conversion feature stock issued for interest 2,320 --
Prepaid expenses and other current assets .......... 22,386 17,487
Prepaid commissions ................................ 41,835 (117,346)
Deposits and other assets .......................... 16,478 (19,169)
Accounts payable and other accrued expenses ........ 222,565 (163,443)
Accrued interest payable ........................... 220,975 124,687
----------- -----------
Net operating cash flows continuing operations ............ (470,093) 2,456,040
Net operating cash flows discontinued operations .......... (827,215) (5,536,569)
----------- -----------
Net cash used in operating activities ...................... (1,297,308) (3,080,529)
----------- -----------
Investing activities:
Collection of notes receivable related parties ............ -- 16,564
Purchase of property and equipment ......................... -- (2,882)
----------- -----------
Net investing cash flows - continuing operations ........... -- 13,682
Net investing cash flows - discontinued operations ......... (1,534) (134,953)
----------- -----------
Net cash used in investing activities ...................... (1,534) (121,271)
----------- -----------
Financing activities:
Proceeds from exercise of stock options and warrants ...... 11,500 9,125
Proceeds from issuance of convertible notes payable ....... 1,090,000 2,345,000
Proceeds from issuance of convertible notes
payable related parties ............................... 150,000 175,000
Proceeds from issuance of notes payable related parties .. -- 900,000
Proceeds from conversion of units ......................... 29,460 --
Proceeds from purchase of common stock .................... 30,000 --
Repayment of notes payable ................................ (18,897) --
Repayment of notes payable related parties ............... (25,000) (20,755)
Repayment of convertible notes payable related parties ... (100,000) (300,000)
----------- -----------
Net financing cash flows - continuing operations ........... 1,167,063 3,108,370
----------- -----------
Net financing cash flows - discontinued operations ......... -- (130,373)
----------- -----------
Net cash provided in financing activities .................. 1,167,063 2,977,997
----------- -----------
Net increase (decrease) in cash and cash equivalents ........... (131,779) (223,803)
Cash and cash equivalents, beginning of period ................. 141,691 365,494
----------- -----------
Cash and cash equivalents, end of period ....................... $ 9,912 $ 141,691
=========== ===========
See accompanying notes to consolidated financial statements.
F-6
ONCOLOGIX TECH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Supplemental disclosure of cash flow information (continued):
Year Ended August 31,
---------------------
2008 2007
---- ----
Cash paid during the year for:
Interest $ 58,219 $ 27,946
Income Taxes $ -- $ --
See accompanying notes to consolidated financial statements.
F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
The consolidated financial statements of Oncologix Tech, Inc.
(formerly BestNet Communications Corp., a Nevada corporation, and also formerly
Wavetech International, Inc.) include the accounts of Oncologix Tech, Inc. and
its wholly owned subsidiaries, Oncologix Corporation, Interpretel, Inc.,
Interpretel Canada Inc., and Telplex International Communications, Inc.
(collectively the "Company," "Oncologix," "we," "us," or "our"). On January 22,
2007, we changed our name from BestNet Communications Corp. to Oncologix Tech,
Inc. On July 26, 2006, we launched a medical device segment through the
acquisition of JDA Medical Technologies, Inc. ("JDA"), a development stage
medical device company. Since the acquisition of JDA, our principal activities
have been primarily limited to research and development activities to continue
product development in efforts to obtain government approval for the use of the
medical device, and to seek sources of financing for these research and
development activities. We entered into discussions to dispose of this business
in the 3rd quarter of fiscal 2008. Accordingly, the Medical Device business is
treated as discontinued operations. We had operated an internet based telephone
business (the "Telephone Business") from our inception until it was disposed of
during February 2007. The Telephone Business is accordingly presented as
discontinued operations. The Company's fiscal year ends on August 31. All
significant intercompany accounts and transactions have been eliminated in
consolidation. The Company has recorded net operating losses in each of the
previous sixteen years.
The preparation of the Company's financial statements in conformity
with accounting principles generally accepted in the United States of America
requires the Company's management to make estimates and assumptions that affect
the amounts reported in these financial statements and accompanying notes.
Actual results could differ from those estimates. The Company makes significant
assumptions concerning the amount of the accounts receivable reserve and
reserves related to deferred tax assets. Due to the uncertainties inherent in
the estimation process and the significance of these items, it is at least
reasonably possible that the estimates in connection with these items could be
further materially revised within the next year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments, with an initial
maturity of three (3) months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation is provided
for on the straight-line method over the estimated useful lives of the related
assets as follows:
Furniture and fixtures 5 to 7 years
Computer equipment 5 years
Equipment 5 to 7 years
Software 3 to 5 years
The cost of maintenance and repairs is charged to expense in the
period incurred. Expenditures that increase the useful lives of assets are
capitalized and depreciated over the remaining useful lives of the assets. When
items are retired or disposed of, the cost and accumulated depreciation are
removed from the accounts and any gain or loss is included in income.
LONG-LIVED ASSETS
The Company periodically evaluates whether events and circumstances
have occurred that may warrant revision of the estimated useful life of property
and equipment or whether the remaining balance of property and equipment, or
F-8
other long-lived assets, should be evaluated for possible impairment. Instances
that may lead to an impairment include: (i) a significant decrease in the market
price of a long-lived asset group; (ii) a significant adverse change in the
extent or manner in which a long-lived asset or asset group is being used or in
its physical condition; (iii) a significant adverse change in legal factors or
in the business climate that could affect the value of a long-lived asset or
asset group, including an adverse action or assessment by a regulatory agency;
(iv) an accumulation of costs significantly in excess of the amount originally
expected for the acquisition or construction of a long-lived asset or asset
group; (v) a current-period operating or cash flow loss combined with a history
of operating or cash flow losses or a projection or forecast that demonstrates
continuing losses associated with the use of a long-lived asset or asset group;
or (vi) a current expectation that, more likely than not, a long-lived asset or
asset group will be sold or otherwise disposed of significantly before the end
of its previously estimated useful life.
An estimate of the related undiscounted cash flows, excluding
interest, over the remaining life of the property and equipment and long-lived
assets is used in assessing recoverability. Impairment loss is measured by the
amount which the carrying amount of the asset(s) exceeds the fair value of the
asset(s). The Company primarily employs two methodologies for determining the
fair value of a long-lived asset: (i) the amount at which the asset could be
bought or sold in a current transaction between willing parties or (ii) the
present value of estimated expected future cash flows grouped at the lowest
level for which there are identifiable independent cash flows.
INCOME TAXES
Income taxes are determined using the asset and liability method. This
method gives consideration to the future tax consequences associated with
temporary differences between the carrying amounts of assets and liabilities for
financial statement purposes and the amounts used for income tax purposes.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values for financial instruments are determined at
discrete points in time based on relevant market information. These estimates
involve uncertainties and cannot be determined with precision. The carrying
amounts of accounts payable, accrued expenses, and notes payable approximate
fair value.
CONSOLIDATION POLICIES
The consolidated financial statements for the years ended August 31,
2008 and 2007 include the accounts of Oncologix Tech, Inc. and its wholly owned
subsidiaries, Oncologix Corporation, Interpretel (Canada) Inc. and Interpretel
Inc., collectively the Company. Oncologix Corporation is a Nevada corporation.
Interpretel Inc. is an Arizona corporation. Interpretel (Canada) Inc. is a
Canadian corporation. All significant intercompany accounts and transactions
have been eliminated in consolidation.
STOCK-BASED COMPENSATION
Prior to September 1, 2006, we accounted for our stock-based
compensation plans under the recognition and measurement provisions of
Accounting Principles Board Opinion ("APB 25") No. 25 "Accounting for Stock
Issued to Employees," and related interpretations, as permitted by FASB
Statement No. 123, Accounting for Stock-Based Compensation ("SFAS 123").
Effective September 1, 2006, we adopted the fair value recognition provisions of
SFAS 123(R), using the modified prospective transition method. Under that
transition method, employee compensation cost recognized for fiscal 2007
includes: (i) compensation cost for all share-based payments granted prior to,
but net yet vested as of September 1, 2006, based on the grant date fair value
estimated in accordance with the original provisions of SFAS 123 and (ii)
compensation cost for all share-based payments granted subsequent to September
1, 2006, based on the grant date fair value estimated in accordance with the
provisions of SFAS 123(R). Results for prior periods have not been restated.
Stock-based compensation expense is recognized as a component of general and
administrative expense in the Statement of Operations.
As a result of adopting SFAS 123(R) on September 1, 2006, our net loss
for the fiscal years ended August 31, 2008 and 2007, is $36,267 and $222,057
higher respectively, than if we had continued to account for share-based
compensation under APB 25, respectively. The adoption of this standard had no
impact on our provision for income taxes because of the valuation allowance for
our deferred tax assets due to our history of recurring net losses.
F-9
NET LOSS PER COMMON SHARE
Basic earnings (loss) per share is calculated by dividing income
(loss) available to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted earnings (loss) per share is
calculated based on the weighted average number of common shares outstanding
during the period plus the dilutive effect of common stock purchase warrants and
stock options using the treasury stock method and the dilutive effects of
convertible notes payable and convertible preferred stock using the if-converted
method. Basic and diluted earnings per share for the years ended August 31, 2008
and 2007 are as follows:
Year Ended August 31,
----------------------------
2008 2007
------------ ------------
Net loss attributable to common shareholders
Continuing operations .................... $ (3,532,807) $ (2,088,348)
Discontinued operations .................. (1,058,006) (5,557,864)
------------ ------------
$ (4,590,813) $ (7,646,212)
============ ============
Weighted average shares outstanding ........... 80,615,046 66,454,700
============ ============
Loss per common share, basic and diluted:
Continuing operations .................... $ (0.04) $ (0.03)
Discontinued operations .................. (0.01) (0.09)
------------ ------------
$ (0.05) $ (0.12)
============ ============
Due to the net losses in fiscal 2008 and fiscal 2007, basic and
diluted loss per share was the same, as the effect of potentially dilutive
securities would have been anti-dilutive. Potentially dilutive securities not
included in the diluted loss per share calculation, due to net losses, are as
follows:
Year Ended August 31,
-----------------------------
2008 2007
-----------------------------
Underlying Underlying
Description Common Shares Common Shares
----------- ------------- -------------
Convertible preferred stock ................. 591,724 886,324
Convertible notes payable ................... -- 8,803,750
Options ..................................... -- 297,055
Warrants .................................... -- 23,784
------------- -------------
Total potentially dilutive securities ....... 591,724 10,010,913
============= =============
SEGMENT INFORMATION
SFAS No. 131, "Disclosure About Segments of an Enterprise and Related
Information," defines operating segments as components of a company about which
separate financial information is available that is evaluated regularly by the
chief decision maker in deciding how to allocate resources and in assessing
performance. The Company has identified two operating segments: telephone and
medical device. Our telephone and medical device segments is presented as
discontinued operations for all periods presented.
ADVERTISING COSTS
Advertising costs are expensed as incurred and are included in
selling, general and administrative expenses. Advertising expense totaled
approximately nil and $2,000 for the years ended August 31, 2008 and 2007,
respectively.
F-10
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2009, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 166 ("SFAS No. 166") "Accounting
for Transfers of Financial Assets - an amendment of SFAS No. 140" which improves
the relevance, representational faithfulness and comparability of the
information that a reporting entity provides in its financial statements about a
transfer of financial assets; the effects of a transfer on its financial
position, financial performance, and cash flows; and a transferor's continuing
involvement, if any, in transferred financial assets. This Statement has the
same scope as Statement 140. Accordingly, this Statement applies to all
entities. SFAS No. 166 must be applied as of the beginning of each reporting
entity's first annual reporting period that begins after November 15, 2009, for
interim periods within that first annual reporting period and for interim and
annual reporting periods thereafter. We do expect the adoption of SFAS No. 166
to have a material effect on our financial condition or results of operations.
In May 2009, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 165 ("SFAS No. 165") "Subsequent Events"
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued or
are available to be issued. In particular, this Statement sets forth: (1) The
period after the balance sheet date during which management of a reporting
entity should evaluate events or transactions that may occur for potential
recognition; (2) The circumstances under which an entity should recognize events
or transactions occurring after the balance sheet date in its financial
statements; (3) The disclosures that an entity should make about events or
transactions that occurred after the balance sheet date. In accordance with this
Statement, an entity should apply the requirements to interim or annual
financial periods ending after June 15, 2009. We do expect the adoption of SFAS
No. 165 to have a material effect on our financial condition or results of
operations.
In May 2008, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 162 ("SFAS 162") "The Hierarchy of
Generally Accepted Accounting Principles" which identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of non-governmental entities that are
presented in conformity with generally accepted accounting principles (GAAP) in
the United States. This statement is effective 60 days following the SEC's
approval of the PCAOB amendment to AU Section 411, The Meaning of Present Fairly
in Conformity with Generally Accepted Accounting Principles.
In December 2007, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 160 ("SFAS 160")
"Non-controlling Interest in Consolidated Financial Statements - an amendment of
ARB No. 51" which improves the relevance, comparability and transparency of the
financial information that a reporting entity provides in its consolidated
financial statements by establishing accounting and reporting standards that
require: a) the ownership interest in subsidiaries held by parties other than
the parent be clearly identified, labeled and presented in the consolidated
financial statements; b) the amount of consolidated net income attributable to
the parent and to the non-controlling interest be clearly identified and
presented on the face of the consolidated statement of income; c) changes in a
parents controlling interest in its subsidiary are to be accounted for
consistently; d) when a subsidiary is deconsolidated, any retained
non-controlling equity investment in the former subsidiary be initially measured
at fair value; and entities provide sufficient disclosures that clearly identify
and distinguish between the interest of the parent and the interest of the
non-controlling owners. SFAS No. 160 is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15, 2008. We
do not expect the adoption of SFAS No. 160 to have a material effect on our
financial condition or results of operations.
In February 2007, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial
Liabilities" ("SFAS 159"), which is effective for fiscal years beginning after
November 15, 2007. SFAS 159 permits entities to choose to measure many financial
instruments and certain other items at fair value. The objective is to improve
financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. We do not expect the adoption of SFAS 159 to have a material impact
on our financial condition or results of operations.
3. DISCONTINUED OPERATIONS
Our Telephone Business was never profitable and we were able to
continue it only by repeated equity and debt financings. Accordingly, during
December 2006, we determined to dispose of most of the assets of the Telephone
Business and entered into discussions with a prospective purchaser. During
January 2007, we entered into an agreement to sell those assets for an aggregate
F-11
selling price of $60,000 in cash. Under the terms of the sale, we retained the
rights to receivables generated and deposits made prior to January 31, 2007. We
completed the sale during February 2007. Loss from discontinued operations for
our telephone business decreased to nil during the fiscal 2008, compared to
$93,178, a decrease in excess of 100% or $93,178 from the comparable period in
fiscal 2007. These recurring losses were the reason behind the disposal of the
telephone business segment in the second quarter of fiscal 2007.
Operating results of our telephone business are summarized as follows:
Year Ended August 31,
------------------------
2008 2007
---------- ----------
Revenue.................... $ -- $ 351,568
Cost of Revenue............ -- 210,545
---------- ----------
Gross margin............. -- 141,023
Other operating expenses... -- 234,201
---------- ----------
Loss from discontinued operations.. $ -- $ (93,178)
========== ==========
We entered the medical device business at the end of July 2006 through
the acquisition of JDA Medical Technologies, Inc. ("JDA"), a development stage
company, which was merged into our wholly owned subsidiary, Oncologix
Corporation. On January 22, 2007, we changed our name to Oncologix Tech, Inc.,
to reflect this new business. During June 2007, we moved our principal offices
from Grand Rapids, Michigan, to our offices at 3725 Lawrenceville-Suwanee Road,
Suite B-4, Suwanee, Georgia, 30024, telephone (770) 831-8818. At that address,
our business was the development of a medical device for brachytherapy
(radiation therapy), called the "Oncosphere" (or "Oncosphere System"), for the
advanced medical treatment of soft tissue cancers. It is a radioactive
micro-particle designed to deliver therapeutic radiation directly to a tumor
site by introducing the micro-particles into the artery that feeds the tumor
tissue. Its first application is expected to be the treatment of liver cancer.
Due to a lack of funding, we had to suspend these activities on December 31,
2007, whereupon we closed the offices in Suwanee, Georgia.
We have previously reported discussions with respect to a transfer of
our Oncosphere assets to another company. We are currently attempting to resolve
a number of uncertainties in connection with such a transaction, including the
obtaining of necessary consents. Accordingly, during May 2008, we determined to
dispose of most of the assets of the Oncosphere project and entered into
discussions with a prospective purchaser.
In February 2009, we entered into a Technology Agreement with Institut
fur Umwelttechnologien GmbH, a German Company ("IUT") whereunder the parties
have agreed that:
(a) The Company has granted an exclusive license to a new IUT
subsidiary, called "IUTM", to develop and manufacture
products based on the Company's proprietary information.
This proprietary information is not based on the technology
that had been subject to the Master License Agreement with
the University of Maryland - Baltimore. The Company has also
transferred to IUTM a number of items of laboratory
equipment and inventory useful in connection with the
licensed information.
(b) The Company retains rights to market products based on such
information as well as first consideration for marketing
rights for other possible IUTM products.
(c In consideration of the license, the Company has received a
10% equity interest in IUTM, which is organized as a private
German limited liability company and IUT has assumed
approximately $82,000 of the Company's indebtedness.
(d) The Company's marketing rights have been transferred to its
subsidiary, Oncologix Corporation and have issued IUTM 10%
of the equity ownership of that subsidiary.
We have been advised that the group of German companies of which IUTM
is a part ("Group") is continuing the development of a brachytherapy device
generally as described above but based on proprietary technology not developed
by the University of Maryland. We have begun discussions with the Group to
determine our future business and financial relationships and plans, including
the possibility of developing and commercializing other radiation-based medical
products. Our plan is then to seek financing for the implementation of those
plans. While our Management is optimistic as to the outcome of those discussions
and future success in financing, it is not possible to predict the probabilities
of success with any degree of certainty.
F-12
Net assets related to discontinued operations of our Oncosphere
business are as follows:
August 31, August 31,
2008 2007
-------- --------
Current assets of discontinued operations:
Prepaid expenses and other current assets ........... $ -- $104,952
-------- --------
Total current assets of discontinued operations . -- 104,952
-------- --------
Long-term assets of discontinued operations:
Property and equipment .............................. 141,017 193,541
Deposits and other assets ........................... -- 6,450
Investment in joint venture ......................... -- 10,000
-------- --------
Total long-term assets of discontinued operations 141,017 209,991
-------- --------
Total assets of discontinued operations .................. $141,017 $314,943
======== ========
Current liabilities of discontinued operations:
Accounts payable and other accrued expenses ......... $ 95,349 $ 40,018
-------- --------
Total liabilities of discontinued operations ............. $ 95,349 $ 40,018
======== ========
Net assets of discontinued operations .................... $ 45,668 $274,925
======== ========
F-13
The expenses shown below are part of the discontinued operations of
our Oncosphere business.
Year Ended August 31,
-----------------------------
2008 2007
------------ ------------
Operating Expenses:
General and administrative....... $ 130,817 $ 484,080
Research and development......... 864,513 4,961,531
Depreciation and amortization.... 40,168 18,256
------------ ------------
Total operating expenses......... 1,035,498 5,463,867
------------ ------------
Loss from operations............. (1,035,498) (5,463,867)
Other income (expense):
Interest income.................. 270 10,078
Interest and finance charges..... -- (10,864)
Loss on disposal of assets....... (13,890) 128
Loss on inpairment............... (10,000) --
Other income (expenses).......... 1,112 (82)
------------ ------------
Total other income (expense)..... (22,508) (740)
------------ ------------
Net Loss from discontinued
operations $ (1,058,006) $ (5,464,607)
============ ============
4. PROPERTY AND EQUIPMENT
Property and equipment is composed of the following at August 31, 2008
and 2007:
August 31, August 31,
2008 2007
---- ----
Furniture ............................... $ -- $ 3,319
Computer equipment ...................... 9,118 11,381
Software ................................ 8,374 8,374
Equipment ............................... 5,714 9,184
-------- --------
Total property and equipment at cost .... 23,206 32,258
Less: accumulated depreciation and
amortization ...................... (18,679) (22,477)
-------- --------
$ 4,527 $ 9,781
======== ========
For fiscal 2008 and 2007, depreciation expense from continuing
operations related to property and equipment is $2,060 and $2,658, respectively.
For fiscal 2008 and 2007, no depreciation amounts were included in research and
development costs. No amount included in the above accumulated depreciation and
amortization balances of $18,679 and $22,477 relates to capitalized software.
5. COMMITMENTS AND CONTINGENCIES
LEASES:
In an effort to streamline costs, we do not have a main corporate
office. Our Chief Executive Officer works out of him home in Scottsdale, Arizona
and our Chief Financial Officer maintains all the corporate records out of his
home in Grand Rapids, Michigan. We maintained our corporate headquarters for the
Company in approximately 2,000 square feet of office space at 3725
Lawrenceville-Suwannee Road, Suwanee, Georgia, 30024 until January 31, 2008. We
leased office space there at a monthly rent of $2,567. We maintained an office
in approximately 1,000 square feet located at 2850 Thornhills Ave. SE, Suite
104, Grand Rapids, MI 49546, at a monthly rent of $1,465 under a lease that
F-14
expired October 31, 2007. Currently we have no monthly lease requirements. Rent
expense under operating leases in 2008, 2007 is $2,930 and $10,131,
respectively. There are no future minimum lease payments on these operating
leases as of August 31, 2008.
EMPLOYMENT AGREEMENTS:
Currently there are no employment agreements as of August 31, 2008.
RESEARCH AND DEVELOPMENT AGREEMENTS:
On October 19, 2006, Oncologix entered into an agreement with the
Institut fur Umwelttechnologien GmbH (IUT) of Berlin Germany whereby IUT will
provide development, manufacturing and testing services in connection with the
development of the feasibility phase of the Oncosphere program. The purpose of
this phase was to demonstrate the commercial feasibility of the manufacture of
the Oncosphere our proposed radioactive microsphere product for the treatment of
liver cancer. This contract is for a nine-month period at a contract price of
seventy-five thousand Euros, or approximately $100,000. IUT will provide
facilities, radiation handling licenses, and personnel with experience in
chemistry, and provide expertise radiation protection, dosimetry, and
radio-labeling of organic compounds. As the initial feasibility phase has been
successfully completed, IUT will continue to support the Oncosphere program in
the Pre-Clinical Testing Phase through the remainder of the term of the initial
agreement. Both parties will meet to discuss a possible continuation of the
support activities beyond the initial contract period. Effective November 1,
2007, Oncologix entered into a revised agreement with IUT to provide continued
support on the development, manufacturing and testing services in connection
with the pre-clinical testing phase of the Oncosphere System. The contract is
for a six-month period at a contract price of ninety-six thousand Euros, or
approximately $145,000. This agreement was terminated effective January 31, 2008
due to our lack of funding.
During October 2006, the Company entered into a twelve-month
consulting agreement with a medical physicist. We agreed to pay a minimum of
$1,050 per month under the terms of the contract. The medical physicist will
provide expertise and advice on the dosimetry of the Oncosphere product;
training on the approved version of the Prowess software for the development
team; provide updates on guidance documents, rules and trends related to medical
physics and the use of microspheres and microsphere brachytherapy; advice on the
product and design requirements for the delivery system for the Oncosphere; and
general microsphere handling considerations and radiation safety program
requirements. This agreement was not renewed and was not in force as of the date
of this report.
During October 2006, the Company entered into consulting agreements
with two consultants located in Germany to provide their expertise with respect
to chemistry and radiation to assist us in completing the development
feasibility phase of the Oncosphere program. These contracts covered the period
through February 2007 and have a contract price of seventy-thousand Euros and
fifty-thousand Euros (or approximately $91,000 and $65,000), respectively. These
contracts were completed in the second quarter of fiscal 2007.
We have entered into new contracts with two consultants located in
Germany to cover the radiation technical support needed to complete pre-clinical
development activities through the Clinical Approval Phase. The new contracts
are for a period of 12 months beginning in March, 2007 ending in February, 2008.
The new base contract price for the two German consultants for this 12 month
period are 144,000 Euros and 100,000 Euros (or approximately $210,000 and
$150,000), respectively, and will cover a minimum of two full-time equivalent
technical resources for the period of the contracts. These consultants will work
in conjunction with IUT to provide adequate supplies of radiolabeled
microspheres to support pre-clinical testing and human clinical trials. On July
31, 2007 we terminated the 100,000 Euros contract with an effective termination
date of August 31, 2007. On January 31, 2008, we terminated the 144,000 Euro
contract. As of the date of this report, neither contract was in force.
In March, 2007, the Company entered into a research agreement with the
Institut de Cardiologie de Montreal (also known as the Montreal Heart Institute,
or MHI) to conduct an acute animal study using non-radioactive Oncospheres. The
cost of the initial animal study was approximately $35,000. The animal study was
conducted at MHI in April, 2007. The results from this animal study helped to
confirm the feasibility of the treatment procedure and the delivery and
distribution of microspheres to the liver. This animal study was completed in
fiscal 2007.
During May 2007, the Company entered into an agreement with Saint
Joseph's Research Institute (SJRI) in Norcross Georgia to conduct two additional
animal studies relating to the pre-clinical testing of the Oncosphere product.
F-15
The term of the agreement is to continue for the time required to conduct the
two studies. The first study, a non-radioactive study, has been completed at a
cost of approximately $9,000. The second study began in the second half of the
2007 calendar year and is expected to cost approximately $200,000. We are
planning an additional animal study to begin after December 2007 with SJRI at an
anticipated cost of $200,000. We conducted a second animal study with SJRI in
October 2007. Due to a lack of funding, we were unable to fully complete this
study and consequently terminated our study with SJRI. As of the date of this
report, this contract was not in force.
On June 11, 2007, the Company entered into a six-month consulting
agreement with a medical doctor. We agreed to pay $2,500 per month for this
consulting contract. The doctor will provide inputs for the design and
development of our microsphere, and provide us access to clinical facilities for
the purposes of reviewing activities associated with the handling, use and
administration of microsphere brachytherapy products. This doctor agreed to
accept unregistered common stock as payment for his services. Accordingly,
22,689 shares, representing $6,667 in consulting fees are currently listed in
subscribed common stock. These shares were issued in October 2007 and valued
based on the average market price of our common stock. This contract was
completed and never renewed and is not in force as of the date of this report.
CONSULTING CONTRACT
In January 2008, the company entered into an eight month consulting
agreement with its Chief Financial Officer, Michael Kramarz. Mr. Kramarz is to
perform all his regular duties he had previously performed as Chief Financial
Officer including the preparation of the Company's financial statements, SEC
Filings, maintenance of corporate records, etc. Mr. Kramarz is to be compensated
$15,000 for January and February 2008 and then $50 per hour worked, for the next
six months, and will turn in weekly time sheets for approval. During the year
ended August 31, 2008, Mr. Kramarz had invoiced the company for $42,400.
F-16
SOFTALK:
Our dispute with Softalk, previously reported, has been settled and
resolved pursuant to a Settlement Agreement and Mutual Release dated June 20,
2007 whereunder Softalk paid the Company $10,000 and each party released the
other from all prior contractual agreements made between the parties and agreed
to a full settlement and discharge and mutual release of all existing and
potential claims.
6. JOINT DEVELOPMENT AGREEMENT
As part of the acquisition of JDA, Oncologix acquired an investment in
a Joint Development Agreement with two other entities to create the Microsphere
Treatment Planning System ("MTPS") software. JDA originally invested $10,000 in
the Joint Development Agreement during 2004 and Oncologix will own 20% of the
MTPS software upon completion of development. Under the terms of the Joint
Development Agreement, Oncologix will be entitled to receive a portion of
profits from future sales, if any, of the MTPS software. As of August 31, 2007,
the MTPS software development had stalled, although we have not given up our
stake in this investment. During the 4th quarter of fiscal 2008, we determined
this investment had no value and was subsequently written down to zero.
7. LICENSE AGREEMENT
The technology underlying the medical device that was formerly being
developed by the Company was subject to a certain Master License Agreement
("License"), effective September 16, 2003, between Oncologix's predecessor, JDA,
as Licensee, and the University of Maryland as Licensor. We assumed JDA's
position in our acquisition of JDA.
On April 7, 2009, the Company entered into a Termination Agreement
with the University of Maryland - Baltimore, The Master License Agreement
between the Company and the University has been formally terminated and each
party has released the other from all liabilities arising under the Master
License Agreement. Below were the details of the License Agreement prior to its
termination.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
On January 1, 2008, the Company adopted SFAS No. 157, "Fair Value
Measurements. SFAS No. 157 defines fair value, establishes a three-level
valuation hierarchy for disclosures of fair value measurement and enhances
disclosure requirements for fair value measures. The three levels are defined as
follows:
o Level 1 inputs to the valuation methodology are quoted prices
(unadjusted) for identical assets or liabilities in active markets.
o Level 2 inputs to the valuation methodology include quoted prices for
similar assets and liabilities in active markets, and inputs that are
observable for the asset or liability, either directly or indirectly,
for substantially the full term of the financial instrument.
o Level 3 inputs to valuation methodology are unobservable and
significant to the fair measurement.
The carrying amounts reported in the balance sheets for the cash and
cash equivalents, receivables and current liabilities each qualify as financial
instruments and are a reasonable estimate of fair value because of the short
period of time between the origination of such instruments and their expected
realization and their current market rate of interest. The carrying value of
notes payable approximates fair value because negotiated terms and conditions
are consistent with current market rates as of August 31, 2008 and 2007
F-17
9. NOTES PAYABLE
CONVERTIBLE NOTES PAYABLE:
Convertible notes payable consist of the following as of August 31,
2008 and August 31, 2007:
August 31, August 31,
2008 2007
----------- -----------
8.0% convertible note due December 4, 2008 ............................ $ -- $ 350,000
10.0% convertible note due December 31, 2007 .......................... -- 150,000
12.0% convertible note due December 4, 2008 ........................... 2,712 --
8.0% convertible notes due December 4, 2008, net of a discount of $0
and $349,857 as of August 31, 2008 and August 31, 2007 ........... 200,000 350,143
6.0% convertible notes due December 4, 2008, net of a discount of
$125,001 and $606,585 as of August 31, 2008 and August 31, 2007... 1,169,999 688,415
6.0% convertible notes due September 17, 2009, net of a discount of
$279,212 and $0 as of August 31, 2008 and August 31, 2007 ......... 810,788 --
----------- -----------
Total unsecured convertible notes payable ............................. 2,183,499 1,538,558
Less: Current portion ................................................ (1,372,711) (850,143)
----------- -----------
Long-term portion ..................................................... $ 810,788 $ 688,415
=========== ===========
The following is a summary of future minimum payments on convertible
notes payable as of August 31, 2008:
Convertible
Fiscal Year Ending August 31, Notes Payable
----------------------------- -------------
2009 $ 1,372,711
2010 $ 810,788
On March 13, 2006, we issued to an accredited investor; a convertible
subordinated promissory note in the principal amount of $350,000, originally
payable on May 13, 2007 (at the end of fourteen months following the date of
issue), accrues interest at the rate of 8% and is convertible into our common
stock at a conversion price of $1.00 per common share. The due date under this
note was extended until July 15, 2007 and subsequently extended until January
15, 2008. In addition, we issued, to that investor, a two-year warrant for the
purchase of 200,000 shares of our common stock at an exercise price of $0.35 per
share. We recognized a discount on this Convertible Subordinated Promissory Note
of $47,379 related to the fair value of the warrants issued in connection with
the note. On May 15, 2007, the accrued interest of $32,649 was converted into
130,718 shares of the Company's common stock at a per share price of $0.25.
Accordingly, the Company recognized a beneficial conversion feature of $22,222.
On September 4, 2007, as an incentive to extend the note to January 15, 2008,
the Company lowered the conversion rate of the note to $0.20 per common share
from $1.00. Accordingly, the Company recognized a beneficial conversion feature
of $87,500. During fiscal 2008, we expensed $87,500 as interest and finance
charges, as a result of amortization of the note discounts. During May 2008, the
investor entered into an agreement whereunder the date on which payment is due
is extended until December 4, 2008, the price at which amounts due under the
notes may be converted to shares of common stock was reduced to $0.15 per share;
provided that any conversion effected on or before June 16, 2008 would be at a
price of $0.05 per share. On June 11, 2008, the investor elected to convert
$380,301 in principal and accrued interest into 7,606,027 shares of common stock
at an exercise price of $0.05 per share. The Company recognized $293,678 in
conversion expense as a result of the reduction of the conversion price to
induce conversion.
During October 2006, we entered into note purchase agreements for
convertible promissory notes with five accredited investors for financing in the
aggregate amount of $250,000. These notes were payable on March 15, 2007, and
accrue interest at the rate of 10% per annum and were convertible into our
common stock at a conversion price of $0.20 per common share. We recognized a
F-18
beneficial conversion feature in the amount of $193,750 relative to these notes.
During the second quarter of fiscal 2007, holders of notes in the aggregate
principal of $100,000 elected to convert their notes, with unpaid accrued
interest of $2,774, into 513,869 shares of common stock which were issued in
June 2007. On March 15, 2007, investors holding the remaining notes in the
principal amount of $150,000 agreed to extend the due date of their respective
notes until September 15, 2007. These notes were further extended until December
31, 2007. During December 2007, the holder of a $50,000 note extended the note
to June 30, 2008. During December 2007, the holder of the remaining $100,000
note elected to convert that principal, plus accrued interest of $11,808 into
559,041 shares of common stock. During May 2008, the remaining $50,000 investor
entered into an agreement whereunder the date on which payment is due is
extended until December 4, 2008, the price at which amounts due under the notes
may be converted to shares of common stock was reduced to $0.15 per share;
provided that any conversion effected on or before June 16, 2008 would be at a
price of $0.05 per share. On June 12, 2008, the investor elected to convert
$58,164 in principal and accrued interest into 1,163,288 shares of common stock
at an exercise price of $0.05 per share. The Company recognized $43,623 in
conversion expense as a result of the reduction of the conversion price to
induce conversion.
During December 2006, we issued seven Convertible Promissory Notes in
an aggregate principal amount of $480,000. These Convertible Promissory Notes
are due December 4, 2008, bear interest at the rate of 6% per annum and are
convertible into our common stock at a rate of $0.30. The Convertible Promissory
Notes were issued in a private offering of Units, each consisting of a
Convertible Promissory Note and a warrant for the purchase of one half the
number of common shares into which each Convertible Promissory Note is
convertible. The warrants expire on December 4, 2008 and have an exercise price
of $0.50 per share. We recognized a discount of $58,708 related to the warrants
and a beneficial conversion feature of $269,541 related to these notes. During
fiscal 2008, $165,945 was expensed as interest and finance charges as a result
of amortizing the discount and beneficial conversion feature. In fiscal 2009,
$480,000 of principal plus accrued interest was converted into common stock. See
Note 15, Subsequent Events for further information on this conversion.
During January 2007, we issued fourteen additional Convertible
Promissory Notes in an aggregate principal amount of $485,000 as a continuation
of the private offering of Units that commenced in December, 2006. We recognized
a discount of $55,446 related to the warrants and a beneficial conversion
feature of $300,197 related to these notes. During fiscal 2008, $190,001 was
expensed as interest and finance charges as a result of amortizing the discount
and beneficial conversion feature. In fiscal 2009, $455,000 of principal plus
accrued interest was converted into common stock. See Note 15, Subsequent Events
for further information on this conversion.
During February 2007, we issued eight additional Convertible
Promissory Notes in an aggregate principal amount of $330,000 as a continuation
of the private offering of Units described above. We recognized a discount of
$35,487 related to the warrants and a beneficial conversion feature of $192,820
related to these notes. During fiscal 2008, $125,638 was expensed as interest
and finance charges as a result of amortizing the discount and beneficial
conversion feature. In fiscal 2009, $330,000 of principal plus accrued interest
was converted into common stock. See Note 15, Subsequent Events for further
information on this conversion.
During May and June 2007, we issued nine Convertible Promissory Notes
in an aggregate principal amount of $700,000. These Convertible Promissory Notes
are due May 7, 2008, bear interest at the rate of 8% per annum and are
convertible into our common stock at a rate of $0.25. We recognized a beneficial
conversion feature of $501,000 related to these notes. During fiscal 2008,
$349,857 was expensed as interest and finance charges as a result of amortizing
the beneficial conversion feature. During May 2008, the investors entered into
agreements whereunder the dates on which payment is due is extended until
December 4, 2008, the price at which amounts due under the notes may be
converted to shares of common stock was reduced to $0.15 per share; provided
that any conversion effected on or before June 16, 2008 would be at a price of
$0.05 per share. On May 30, 2008, holders of two $25,000 notes elected to
convert $54,126 in principal and accrued interest into 1,082,522 shares of
common stock at an exercise price of $0.05 per share. During June 2008, the
three investors holding $450,000 in notes elected to convert $499,479 in
principal and accrued interest into 9,989,589 shares of common stock at an
exercise price of $0.05 per share. The Company recognized $434,201 in conversion
expense as a result of the reduction of the conversion price to induce
conversion. Four investors holding the remaining $200,000 in principal notes
have extended until December 4, 2008. In fiscal 2009, $75,000 of principal plus
accrued interest was converted into common stock. See Note 15, Subsequent Events
for further information on this conversion.
F-19
On September 7, 2007, the Company issued to Stanley Schloz, a former
member of the Company's Board of Directors, a convertible promissory note for
bridge financing in the principal amount of $150,000. This note bears interest
at a rate of 12% and is payable monthly. The principal is due in full on
December 15, 2007. On November 30, 2007, the Company repaid $100,000 of the
principal. In connection with this repayment, Mr. Schloz agreed to extend the
remaining principal until January 14, 2008. The note is convertible into the
Company's common stock at a conversion price of $0.20 per common share. During
May 2008, Mr. Schloz entered into an agreement whereunder the date on which
payment is due is extended until December 4, 2008, the price at which amounts
due under the notes may be converted to shares of common stock was reduced to
$0.15 per share; provided that any conversion effected on or before June 16,
2008 would be at a price of $0.05 per share. On June 9, 2008, the investor
elected to convert $50,000 in principal into 1,000,000 shares of common stock at
an exercise price of $0.05 per share. The Company recognized $33,333 in
conversion expense as a result of the reduction of the conversion price to
induce conversion. Mr. Schloz elected to extend $2,712 in accrued interest until
March 31, 2012 which is convertible at $0.15 per share.
During September through November 2007, we issued twenty-seven
Convertible Promissory Notes in an aggregate principal amount of $1,090,000.
These Convertible Promissory Notes are due September 17, 2009, bear interest at
the rate of 6% per annum and are convertible into our common stock at a rate of
$0.30. The Convertible Promissory Notes were issued in a private offering of
Units, each consisting of a Convertible Promissory Note and a warrant for the
purchase of the number of common shares into which each Convertible Promissory
Note is convertible. The warrants expire on September 17, 2009 and have an
exercise price of $0.50 per share. We recognized a discount of $180,330 related
to the warrants and a beneficial conversion feature of $318,330 related to these
notes. During fiscal 2008, $219,448 was expensed as interest and finance charges
as a result of amortizing the discount and beneficial conversion feature.
CONVERTIBLE RELATED PARTY NOTES PAYABLE:
August 31, August 31,
2008 2007
-------- --------
10.0% convertible note due December 4, 2008(1) .............. $ 63,822 $ --
10.0% convertible note due December 4, 2008 ................. -- 80,450
10.0% convertible notes due December 4, 2008 ................ -- 200,000
-------- --------
Outstanding unsecured related party convertible notes payable $ 63,822 $280,450
======== ========
(1) Note resulted from the extension of interest of three convertible notes.
On March 23, 2005, we issued to Anthony Silverman, a former member of
our Board of Directors, a Convertible Promissory Note in the principal amount of
$110,000, convertible at the option of the holder into 916,667 shares of the
Company's common stock. The Convertible Promissory Note was due on March 31,
2006 and bears interest at the rate of 10% per annum, payable monthly and is
convertible into our common stock at a rate of $0.12. During May 2008, Mr.
Silverman entered into an agreement whereunder the date on which payment is due
is extended until December 4, 2008, the price at which amounts due under the
notes may be converted to shares of common stock was reduced to $0.15 per share;
provided that any conversion effected on or before June 16, 2008 would be at a
price of $0.05 per share. On June 9, 2008, the investor elected to convert
$81,700 in principal and interest into 1,634,000 shares of common stock at an
exercise price of $0.05 per share. No beneficial conversion feature was recorded
as a result of the note extension or conversion. Mr. Silverman elected to extend
$2,299 in accrued interest until March 31, 2009 which is convertible at $0.15
per share. The Company recognized $47,658 in conversion expense as a result of
the reduction of the conversion price to induce conversion.
On July 7, 2006, we issued to Mr. Silverman another Convertible
Promissory Note in the principal amount of $200,000 convertible into our common
stock at a conversion price of $0.30 per share. The Company subsequently
recorded a beneficial conversion feature of $66,667 in conjunction with the
private placement issued on December 4, 2006. This latter note was payable at
the end of 90 days following the date of issue, accrues interest at the rate of
10% per annum and is convertible into our common stock at a conversion price of
$0.30 per common share. Mr. Silverman subsequently agreed to extend this note
until January 14, 2008. During fiscal 2007, we expensed $66,667 as interest and
finance charges as a result of amortizing the beneficial conversion feature.
During May 2008, Mr. Silverman entered into an agreement whereunder the date on
F-20
which payment is due is extended until December 4, 2008, the price at which
amounts due under the notes may be converted to shares of common stock was
reduced to $0.15 per share; provided that any conversion effected on or before
June 16, 2008 would be at a price of $0.05 per share. On May 30, 2008, the
investor elected to convert $237,973 in principal and interest into 4,759,452
shares of common stock at an exercise price of $0.05 per share. The Company
recognized $158,648 in conversion expense as a result of the reduction of the
conversion price to induce conversion.
On December 15, 2006, we issued to Mr. Silverman a 16-day promissory
note, for bridge financing in the amount of $200,000. This note accrued interest
at a rate of 10% per annum and was due in full, including accrued interest, on
December 31, 2006. On December 29, 2006, Mr. Silverman agreed to extend this
note until January 31, 2007 and then further extended until December 15, 2007.
In connection with a $25,000 principal payment on November 30, 2007, Mr.
Silverman agreed to extend the balance of the note to January 14, 2008. During
May 2008, Mr. Silverman entered into an agreement whereunder the date on which
payment is due is extended until December 4, 2008, the price at which amounts
due under the notes may be converted to shares of common stock was reduced to
$0.15 per share; provided that any conversion effected on or before June 16,
2008 would be at a price of $0.05 per share. At the time the promissory note was
extended in May 2008, the Company did not recognize any beneficial conversion
feature on the reclassification of this promissory note to a convertible
promissory note. On June 9, 2008, the investor elected to convert $175,000 in
principal into 3,500,000 shares of common stock at an exercise price of $0.05
per share. The Company recognized $116,667 in conversion expense as a result of
the reduction of the conversion price to induce conversion. Mr. Silverman
elected to extend $28,383 in accrued interest until December 4, 2008 which is
convertible at $0.15 per share.
On April 13, 2007, we issued to Mr. Silverman a 45-day promissory note
for bridge financing in the amount of $400,000. This note accrued interest at a
rate of 8% per annum and was due in full, including accrued interest on May 28,
2007. This note has been extended until July 31, 2007 and then further extended
until December 15, 2007. On November 30, 2007, Mr. Silverman agreed to extend
the note to January 14, 2008. During May 2008, Mr. Silverman entered into an
agreement whereunder the date on which payment is due is extended until December
4, 2008, the price at which amounts due under the notes may be converted to
shares of common stock was reduced to $0.15 per share; provided that any
conversion effected on or before June 16, 2008 would be at a price of $0.05 per
share. At the time the note was extended, during May 2008, the Company did not
recognize any beneficial conversion feature on the reclassification of this
promissory note to a convertible promissory note. On June 9, 2008, the investor
elected to convert $400,000 in principal into 8,000,000 shares of common stock
at an exercise price of $0.05 per share. The Company recognized $266,667 in
conversion expense as a result of the reduction of the conversion price to
induce conversion. Mr. Silverman elected to extend $33,140 in accrued interest
until December 4, 2008 which is convertible at $0.15 per share.
On June 9, 2008, we issued to Mr. Silverman a convertible promissory
note for extended interest expense in the amount of $63,822. This note accrued
interest at a rate of 10% per annum and was due, including accrued interest on
March 31, 2009. In fiscal 2009, $63,822 of principal plus accrued interest was
converted into common stock. See Note 15, Subsequent Events for further
information on this conversion.
OTHER NOTES PAYABLE:
On October 1, 2007, the Company entered into a note payable agreement
to finance $18,897 of directors and officer's insurance premiums. The note bears
interest at a rate of 10.50% per annum and is due in nine monthly installments
of $2,193, including principal and interest, beginning on November 1, 2007. On
January 1, 2008 the Company paid $12,801 to settle this note in full.
As a condition to the acquisition of JDA, the Company assumed a note
payable to the State of Maryland Department of Business and Economic Development
("DBED") in the amount of $100,000. At the time of assumption, the unpaid
principal and interest on this note was $126,055. The note bears interest at a
rate of 10% and was paid in full, including accrued interest of $36,919 on June
30, 2007.
10. STOCKHOLDERS' EQUITY
PREFERRED STOCK:
The Company is authorized to issue up to 10,000,000 shares of
preferred stock, in one or more series, and to determine the price, rights,
preferences and privileges of the shares of each such series without any further
F-21
vote or action by the stockholders. The rights of the holders of common stock
will be subject to, and may be adversely affected by, the rights of the holders
of any shares of preferred stock that may be issued in the future.
UNITS:
On March 30, 2003, the Company completed the private placement of
Units pursuant to the terms of a Unit Purchase Agreement (the "Units") with
accredited investors. Each Unit consists of the following underlying securities:
(i) three shares of the Company's common stock; (ii) one share of Series A
Convertible Preferred Stock, par value $.001 per share; and (iii) one three-year
warrant to purchase one share of common stock at a per share price of $0.30. The
warrants expired on March 31, 2006. Each share of Series A Convertible Preferred
Stock is convertible into two shares of the Company's common stock in exchange
for $0.10 per common share ($.20 for each Series A Convertible Preferred share
converted). The securities underlying the Units are not to be separately
tradable or transferable apart from the Units until such time as determined by
the Company's Board of Directors. Our Board of Directors authorized the
separation of the Units into their component parts twice, once in July 2004 and
again in February 2005. Our Board of Directors again authorized the separation
of the Units in April 2008. On April 11, 2008 holders of 100,300 Units
contributed $20,060 to convert 100,300 shares of preferred stock into 200,600
shares of common stock. On June 27, 2008, holders of 47,000 Units contributed
$9,400 to convert 47,000 shares of preferred stock into 94,000 shares of common
stock. As of August 31, 2008 and August 31, 2007, there were 295,862 and 443,162
Units outstanding that had not been separated, respectively. These units are
presented as their underlying securities on our balance sheet and consist of
295,862 shares of Series A Preferred Stock and 887,586 shares of common stock
which is included in the issued and outstanding shares.
SUBSCRIBED COMMON STOCK:
As of August 31, 2008, there are no shares of subscribed stock
issuable. As of August 31, 2007, we have 22,689 shares of subscribed stock that
are issuable for the payment of consulting services from June 11, 2007 until
August 31, 2007, representing a consulting fee of $6,667.
COMMON STOCK:
Under the terms of our acquisition of JDA, we issued 43,000,000 shares
of our common stock to the previous owners of JDA. Of these shares, 29,843,160
were placed into escrow pending the achievement of certain development and
operating goals. These escrowed shares were not included in the calculation of
the purchase price of JDA and will be included in that calculation if and to the
extent that the applicable contingencies are resolved and the shares are
released from escrow. The development and operating goals that relate to the
release of these shares, and the number of shares to be released at the time the
goal is achieved are as follows: (i) 7,460,790 shares upon the completion of the
"Development Phase", as defined in the Merger Agreement between the Company and
JDA (already released as stated below); (ii) 9,325,986 shares upon the
completion of the "Pre-Clinical Testing Phase as defined in the merger
agreement; and (iii) 13,056,382 shares upon the completion of the Clinical
Approval Phase. On September 10, 2009, the remaining 22,382,368 shares in escrow
were released back to the Company and subsequently retired.
On July 21, 2008, the Company sold 1,500,000 shares of its common
stock, to an accredited investor, under a stock purchase agreement at $0.01 per
common share.
On August 5, 2008, the Company sold 1,500,000 shares of its common
stock, to Anthony Silverman, our President and CEO, under a stock purchase
agreement at $0.01 per common share.
F-22
WARRANTS:
The following table summarizes warrant activity in fiscal 2008 and
2007:
Number Exercise Price
------ --------------
Outstanding, August 31, 2006 ............. 1,480,751 $0.27 - $2.90
Expired/Retired .......................... (1,200,000) $0.32 - $0.50
Exercised ................................ -- --
Issued ................................... 2,158,326 $ 0.50
---------- -------------
Outstanding, August 31, 2007 ............. 2,439,077 $0.27 - $2.90
========== =============
Expired/Retired .......................... (230,750) $0.35 - $2.90
Exercised ................................ -- --
Issued ................................... 3,690,832 $0.40 - $0.50
---------- -------------
Outstanding, August 31, 2008 ............. 5,899,159 $0.27 - $0.50
========== =============
Details relative to the 5,899,159 outstanding warrants at August 31,
2008 are as follows:
Date of Number Exercise Expiration
Grant of Shares Price Date
- --------------------------------------------- ----------------- ----------- ----------------------
First quarter of fiscal 2002 25,000 $ 2.90 October 17, 2007
Second quarter of fiscal 2002 5,751 1.19 January 30, 2008
Third quarter of fiscal 2002 1,100,000 0.50 April 23, 2007
Second quarter of fiscal 2004 100,000 0.32 January 8, 2007
Third quarter of fiscal 2004 40,000 0.27 April 15, 2014
Fourth quarter of fiscal 2004 10,000 0.29 June 4, 2009
Third quarter of fiscal 2006 200,000 0.35 March 13, 2008
-----------------
Outstanding, August 31, 2006 1,480,751
Second quarter of fiscal 2007 (100,000) 0.32 January 8, 2007
Second quarter of fiscal 2007 2,158,326 0.50 December 4, 2008
Third quarter of fiscal 2007 (1,100,000) 0.50 April 23, 2007
-----------------
Outstanding, August 31, 2007 2,439,077
First quarter of fiscal 2008 (25,000) 2.90 October 17, 2007
First quarter of fiscal 2008 3,633,332 0.50 September 17, 2009
Second quarter of fiscal 2008 (5,750) 1.19 January 30, 2008
Second quarter of fiscal 2008 57,500 0.40 December 3, 2009
Third quarter of fiscal 2008 (200,000) 0.35 March 13, 2008
-----------------
Outstanding, August 31, 2008 5,899,159
=================
The remaining contractual life of warrants outstanding as of August
31, 2008 and 2007 was 0.79 years. Warrants for the purchase of 5,899,159 and
2,439,077 shares were immediately exercisable on August 31, 2008 and 2007
respectively with a weighted-average price of $0.50 and $0.51 per share.
STOCK OPTIONS:
The Company is authorized to issue up to 4,600,000 shares of common
stock under its 1997 Stock Incentive Plan. Shares may be issued as incentive
stock options, non-statutory stock options, deferred shares or restricted
shares. Options are granted at the fair market value of the common stock on the
date of the grant and have terms of up to ten years.
The Company is authorized to issue up to 7,500,000 shares of common
stock under its 2000 Stock Incentive Plan. Shares may be issued as incentive
stock options, non-statutory stock options, deferred shares or restricted
shares. Options are granted at the fair market value of the common stock on the
date of the grant and have terms of up to ten years.
F-23
During the fiscal years ended August 31, 2008 and 2007, we granted
135,000 and 1,135,000 options from the stock incentive plans described above,
respectively. The fair value of options granted is estimated using the
Black-Scholes option pricing model. This model utilizes the following factors to
calculate the fair value of options granted: (i) annual dividend yield, (ii)
weighted-average expected life, (iii) risk-free interest rate and (iv) expected
volatility.
The fair value for these options was estimated as of the date of grant
using a Black-Scholes option-pricing model with the following assumptions:
Year Ended August 31,
---------------------
2008 2007
-------------- --------------
Volatility ...................... 81% to 96% 118% to 188%
Risk free rate .................. 3.375% to 4.50% 4.50% to 4.88%
Expected dividends .............. None None
Expected term (in years) ........ 6 to 10 years 3 to 6 years
Expected volatility is based primarily on historical volatility.
Historical volatility is computed using weekly average pricing observations for
an applicable historic period. We believe this method produces an estimate that
is representative of our expectations of the future volatility over the expected
term of our options. We currently have no reason to believe future volatility
over the expected life of these options is likely to differ materially from
historical volatility. The weighted-average expected life is based upon share
option exercises, pre and post vesting terminations and share option term
expirations. The risk-free interest rate is based on the U.S. treasury security
rate estimated for the expected life of the options at the date of grant.
SFAS 123(R) requires the estimation of forfeitures when recognizing
compensation expense and that this estimate of forfeitures be adjusted over the
requisite service period should actual forfeitures differ from such estimates.
Changes in estimated forfeitures are recognized through a cumulative adjustment,
which is recognized in the period of change and which impacts the amount of
unamortized compensation expense to be recognized in future periods.
During the fiscal years ended August 31, 2008 and 2007, 50,000 and
52,000 employee options were exercised, respectively, 1,131,000 and 250,000
options were forfeited, respectively and 8,333 and 33,333 options expired. As of
August 31, 2008, $4,537 of total unrecognized compensation cost related to
employee stock options is expected to be recognized over a weighted average
period of approximately 0.31 years. Additional information relative to our
employee options outstanding at August 31, 2008 is summarized as follows:
Options Options
Outstanding Exercisable
----------- -----------
Number of options......................................... 4,402,526 4,359,192
Aggregate intrinsic value of options...................... $ -- $ --
Weighted average remaining contractual term (years)....... 3.23 3.17
Weighted average exercise price........................... $ 0.69 $ 0.69
The aggregate intrinsic value in the table above represents the total
pre-tax intrinsic value (the difference between our closing stock price on the
last trading day of the fourth quarter of fiscal 2008 and the exercise price,
multiplied by the number of in-the-money options) that would have been received
by the option holders had all option holders exercised their options on August
31, 2008.
F-24
A summary of the Company's stock option activity is as follows:
Weighted Average
Number of Option Price Exercise Price
Options Granted Per Share Per Share
--------------- --------- ---------
Outstanding, August 31, 2006.............. 4,657,193 $0.17 - $7.38 $ 0.71
Granted 1,135,000 $0.37 - $0.45 0.42
Exercised (52,000) $0.17 - $0.23 0.17
Cancelled (283,333) $0.35 - $4.86 0.88
-------------------- ------------------ ------------------
Outstanding, August 31, 2007.............. 5,456,860 $0.17 - $7.38 $ 0.64
==================== ================== ==================
Granted 135,000 $0.24 - $0.34 0.30
Exercised (50,000) $0.23 0.23
Cancelled (1,139,334) $0.24 - $2.40 0.43
-------------------- ------------------ ------------------
Outstanding, August 31, 2008.............. 4,402,526 $0.17 - $7.38 $ 0.69
==================== ================== ==================
We have 3,610,311 and 3,171,665 shares of common stock available for
future issuance under our 2000 Stock Incentive Plan and 1997 Stock Incentive
Plan, respectively, as of August 31, 2008 and 2007. Under the 2000 Stock
Incentive Plan and 1997 Stock Incentive Plan, the price of the granted common
stock options are equal to the fair market value of such shares on the date of
grant. Both of these plans have been approved by our shareholders. During fiscal
2007, the Company sought and received approval from its shareholders to increase
the number of shares issuable under the 2000 Stock Incentive Plan from 5,000,000
to 7,500,000.
The weighted average fair value of stock options granted during fiscal
2008 and 2007, for which the exercise price was equal to the fair market value
of the stock at the time of grant, were $.30 and $.42 per share, respectively.
During fiscal 2008, we granted 60,000 options to members' of our Board
of Directors at an exercise price of $0.24 per share. These options vest in one
year.
During fiscal 2008, we did not grant any options to employees.
During fiscal 2008, we granted 75,000 options to consultants at an
exercise price of $0.34 per share. These options vest in one year.
During fiscal 2008, 50,000 employee stock options were exercised. The
exercise of these options resulted in proceeds to the Company of $11,500.
11. INCOME TAXES
As of August 31, 2008, the Company has federal net operating loss
carryforwards totaling approximately $32,600,000 and state net operating loss
carryforwards totaling approximately $2,400,000. The federal net operating loss
carryforwards expire in various amounts beginning in 2009 and ending in 2028.
The state net operating loss carryforwards expire in various amounts beginning
in 2009 and ending in 2028. Certain of the Company's net operating loss
carryforwards may be subject to annual restrictions limiting their utilization
in accordance with Internal Revenue Code Section 382, which include limitations
based on changes in control. In addition, approximately $3,200,000 of net
operating loss carryforwards are further limited to activities in a trade or
business in which the Company is not presently involved. Due to our history of
losses from operations, we have provided a valuation allowance for our net
operating loss carryforwards and deferred tax assets, net of certain deferred
tax liabilities.
The Financial Accounting Standards Board (FASB) has issued Financial
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes-An
Interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in an enterprise's
financial statements in accordance with FASB Statement No. 109, Accounting for
Income Taxes. FIN 48 requires a company to determine whether it is more likely
than not that a tax position will be sustained upon examination based upon the
technical merits of the position. If the more-likely-than-not threshold is met,
a company must measure the tax position to determine the amount to recognize in
the financial statements. As a result of the implementation of FIN 48, the
Company performed a review of its material tax positions. At the adoption date
F-25
of May 1, 2007, the Company had no unrecognized tax benefit which would affect
the effective tax rate. As of August 31, 2008 and 2007, the Company had no
accrued interest and penalties related to uncertain tax positions.
The income tax benefit for the years ended August 31, 2008 and 2007 is
comprised of the following amounts:
2008 2007
----------- -----------
Current: $ -- $ --
Deferred:
Federal (636,000) (1,265,000)
State 828,000 (198,000)
----------- -----------
192,000 (1,463,000)
Valuation Allowance (192,000) 1,463,000
----------- -----------
$ -- $ --
The Company's tax benefit differs from the benefit calculated using
the federal statutory income tax rate for the following reasons:
2008 2007
---- ----
Statutory tax rate 34.0% 34.0%
State income taxes 6.0% 5.3%
Change in valuation allowance (40.0)% (39.3)%
Effective tax rate 0.0% 0.0%
The components of the net deferred tax assets (liabilities) are as
follows:
2008 2007
------------ ------------
Deferred tax assets (liabilities):
Property and equipment $ (16,000) $ (9,000)
Intangible assets -- 1,817,000
Other -- 1,000
Net operating loss carryforward 11,218,000 11,285,000
------------ ------------
11,202,000 13,094,000
Valuation allowance (11,202,000) (13,094,000)
------------ ------------
$ -- $ --
============ ============
SFAS No. 109, Accounting for Income Taxes, requires a valuation
allowance to reduce the deferred tax assets if, based on the weight of the
evidence, it is more likely than not that some or all of the deferred tax assets
will not be realized. After consideration of all the evidence, both positive and
negative, management has determined that an $11,202,000 valuation allowance as
of August 31, 2008 is necessary to reduce the net deferred tax assets to the
amount that will more likely than not be realized. The change in the valuation
allowance for the current year is $1,892,000, which is net of approximately
$93,000 of net operating loss benefits that have expired in the current year.
12. RELATED PARTY TRANSACTIONS AND CONTINGENCIES:
FINANCING WITH RELATED PARTIES:
During fiscal 2008 and 2007, the Company entered into financing
agreements with several related parties of the Company. Please see Note 9 for
further descriptions of these transactions.
13. RETIREMENT PLAN
Effective June 1, 2000, the Company adopted a 401(k) retirement plan.
Employees are eligible to participate in the plan after 90 days of service.
Salary deferral may range from 1% to 18%. The Company matches the amounts
deferred by the employees, up to 5% of an employee's annual compensation with
50% of the matched amount vesting after the employees' first year of service and
the remaining 50% of the matched amount vesting after the employees' second year
of service. During fiscal 2007, the Company closed this retirement plan.
F-26
14. STATEMENTS OF CASH FLOWS
During fiscal 2008 and 2007, the Company recognized investing and
financing activities that affected the balance sheet, but did not result in cash
receipts or payments.
For fiscal 2008, these non-cash investing and financing activities are
summarized as follows:
Amount
------
The Company recognized a discount on the Convertible Promissory
Notes issued to many accredited investors (See Note 8). This discount
is related to warrants and beneficial conversion feature issued in
connection with these notes. $ 623,659
During fiscal 2008, the Company converted $2,048,553 of principal
and accrued interest into 39,293,919 shares of its common stock. These
shares were issued in January and June 2008. 2,048,553
The Company recognized conversion expense as a result of reducing
the conversion price on notes converted during fiscal 2008. 1,394,476
The Company issued 65,707 shares in lieu of annual interest
payments. 19,712
The Company recognized a beneficial conversion feature on the
issuance of 65,707 shares in lieu of interest payments. 2,320
On October 1, 2007, the Company entered into a note payable
agreement to finance $18,896 of directors and officer's insurance
premiums. The note bears interest at a rate of 10.50% per annum and is
due in nine monthly installments of $2,193, including principal and
interest, beginning on November 1, 2006. This note was paid in full
during fiscal 2008. 18,897
------------
Total non-cash transactions from investing and financing
activities. $ 4,107,617
------------
For fiscal 2007, these non-cash investing and financing activities are
summarized as follows:
Amount
------
The Company recognized a discount on the Convertible Promissory
Notes issued to many accredited investors (See Note 9). This discount
is related to warrants and beneficial conversion feature issued in
connection with these notes. $ 1,955,837
During fiscal 2007, the Company converted $586,130 of principal
and accrued interest into 2,930,649 shares of its common stock. These
shares were issued in June 2007. 586,130
On October 1, 2006, the Company entered into a note payable
agreement to finance $20,756 of directors and officer's insurance
premiums. The note bears interest at a rate of 10.25% per annum and is
due in nine monthly installments of $2,408, including principal and
interest, beginning on November 1, 2006. This note was paid in full
during July 2007. 20,756
------------
Total non-cash transactions from investing and financing
activities. $ 2,562,723
============
15. SUBSEQUENT EVENTS
On September 1, 2008, Michael Kramarz, the Company's Chief Financial
Officer, signed an additional six month consulting agreement. Mr. Kramarz is to
perform all his regular duties he had previously performed as Chief Financial
F-27
Officer including the preparation of the Company's financial statements, SEC
Filings, maintenance of corporate records, etc. Mr. Kramarz is to be compensated
$50 per hour worked and will turn in weekly time sheets for approval. Mr.
Kramarz had previously had a consulting contract for the period of January 2008
through August 2008. Two additional six month consulting contracts were signed
on March 1, 2009 and September 1, 2009, at the rates of $90 and $70 per hour
worked, respectively.
On September 17, 2009, the Company issued 793,720 shares of common
stock in payment of $39,686 in accrued interest. The annual interest payment due
was in connection with convertible promissory notes originally issued between
September and November 2007. The company also recorded $26,457 in conversion
expense as a result of reducing the conversion price from $0.30 to $0.05 per
share for this conversion. Additionally, note holders elected to extend $18,428
in accrued interest to September 17, 2009. These shares were issued in October
2009.
On October 1, 2008, the Company entered into a note payable agreement
to finance $20,157 of directors and officer's insurance premiums. The note bears
interest at a rate of 9.35% per annum and is due in nine monthly installments of
$2,328, including principal and interest, beginning on November 1, 2007. The
note was paid in full on July 1, 2009.
On October 8, 2008, the Company signed an extension agreement to
January 2, 2009 with the University of Maryland to extend the due dates under
the License Agreement. In connection with this extension, the Company issued the
University of Maryland 2,000,000 shares of common stock which was expensed as
license fees for $80,000. In April 2009, the Company terminated its License
Agreement and accordingly, the 2,000,000 shares were returned to the Company and
subsequently retired.
On October 13, 2008, the company entered into a Stock Purchase
Agreement with an accredited investor to sell 1,500,000 shares of common stock
at $0.01 per share. The shares were issued in October 2008.
On October 13, 2008, the company entered into a Stock Purchase
Agreement with its CEO and President, Anthony Silverman to sell 1,500,000 shares
of common stock at $0.01 per share. The shares were issued in October 2008.
On December 1, 2008, the company entered into a Stock Purchase
Agreement with an accredited investor to sell 1,500,000 shares of common stock
at $0.01 per share. In connection with this agreement, the company also issued
150,000 shares of common stock for payment of a 10% finder's fee. The shares
were issued in December 2008.
On January 13, 2009, the company entered into a Stock Purchase
Agreement with an accredited investor to sell 300,000 shares of common stock at
$0.01 per share. The shares were issued in April 2009.
In February 2009, we entered into a Technology Agreement with Institut
fur Umwelttechnologien GmbH, a German Company ("IUT") whereunder the parties
have agreed that:
(i) The Company has granted an exclusive license to a new IUT
subsidiary, called "IUTM", to develop and manufacture
products based on the Company's proprietary information.
This proprietary information is not based on the technology
that had been subject to the Master License Agreement with
the University of Maryland - Baltimore. The Company has also
transferred to IUTM a number of items of laboratory
equipment and inventory useful in connection with the
licensed information.
(j) The Company retains rights to market products based on such
information as well as first consideration for marketing
rights for other possible IUTM products.
(k) In consideration of the license, the Company has received a
10% equity interest in IUTM, which is organized as a private
German limited liability company and IUT has assumed
approximately $82,000 of the Company's indebtedness.
(l) The Company will transfer its marketing rights to its
subsidiary, Oncologix Corporation and issued IUTM 10% of the
equity ownership of that subsidiary.
We have been advised that the group of German companies of which IUTM
is a part ("Group"), is continuing the development of a brachytherapy device
generally as described above but based on proprietary technology not developed
by the University of Maryland. We have begun discussions with the Group to
determine our future business and financial relationships and plans, including
the possibility of developing and commercializing other radiation-based medical
products. Our plan is then to seek financing for the implementation of those
F-28
plans. While our Management is optimistic as to the outcome of those discussions
and future success in financing, it is not possible to predict the probabilities
of success with any degree of certainty.
On March 17, 2009, the company entered into a Stock Purchase Agreement
with an accredited investor to sell 1,000,000 shares of common stock at $0.015
per share. The shares were issued in April 2009.
In addition, on April 7, 2009, the Company entered into a Termination
Agreement with the University of Maryland - Baltimore, The Master License
Agreement between the Company and the University has been formally terminated
and each party has released the other from all liabilities arising under the
Master License Agreement.
On May 12, 2009, the company entered into a Stock Purchase Agreement
with three accredited investors to sell 2,000,000 shares of common stock at
$0.015 per share. The shares were issued in May 2009.
On May 22, 2009, the company entered into a Stock Purchase Agreement
with an accredited investor to sell 1,000,000 shares of common stock at $0.015
per share. The shares were issued in June 2009.
On June 11, 2009, the company entered into a Stock Purchase Agreement
with an accredited investor to sell 1,500,000 shares of common stock at $0.02
per share. The shares were issued in June 2009.
In April and May of 2009, convertible promissory note holders elected
to convert $1,546,098 in principal and accrued interest into 30,921,961 shares
of common stock. The company also recorded $1,621,767 in conversion expense as a
result of reducing the conversion price from $0.30 to $0.05 per share for this
conversion.
By letter dated August 12, 2009, the Securities and Exchange
Commission ("SEC") notified us that unless we become current with our required
public filings by August 27, 2009, the SEC may cause the Company to be
de-registered under the securities laws and that the SEC may issue an order
suspending public trading of the Company's securities. As a result of
preliminary conversations with the staff of the SEC, the Company believes that
additional time may be granted that will be sufficient for the Company to be
compliant with its filings. However, there is no assurance of that outcome. Such
de-registration and suspension of trading will seriously limit the ability of
investors to re-sell any of our shares held by them. In June, 2009, we began an
effort to achieve compliance with all reporting requirements and our independent
auditors began the process of examining our financial statements with a view to
certifying them as required by law. This process was completed as shown by the
auditor's report on the Financial Statements included in this Annual Report.
16. GOING CONCERN
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. The Company has incurred
losses from operations over the past several years and anticipates additional
losses in fiscal 2009 and prior to achieving breakeven. Originally, as a result
of the acquisition of JDA and the associated License Agreement with the UofM,
the Company is required, under the terms of the amended license agreement to
raise substantial funds for the development of the technology associated with
the License Agreement. Due to the termination of the License Agreement in April
2009, we will not be required to raise these additional substantial funds.
As of the date of this report, we will need approximately $250,000 to
fund operations for the next twelve (12) months, without regard to repaying any
short-term convertible or non-convertible notes payable. This funding will allow
us to maintain basic operations and to bring our public filings current and keep
them current. Our Company has never been profitable and we have had to rely on
debt and equity financings to fund operations. Significant delays in development
could affect the ability to obtain future debt and equity funding which may
affect our ability to continue as a going concern.
F-29
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On June 19, 2009, the Board of Directors of the Registrant recommended
and approved the dismissal of Semple, Marchal & Cooper, LLP as the Registrant's
independent registered public accounting firm effective June 19, 2009.
The reports of Semple, Marchal & Cooper, LLP on the Registrant's
consolidated financial statements for the fiscal years ended August 31, 2007 and
2006 did not contain any adverse opinion or disclaimer of opinion and were not
qualified or modified as to audit scope or accounting principles. Their opinion
was qualified due to uncertainty as to the Registrant's ability to continue as a
going concern.
The decision to change the Registrant's independent registered public
accounting firm was recommended and approved by the Registrant's Board of
Directors.
During the fiscal years ended August 31, 2007 and 2006, as well as the
nine-month period ended May 31, 2008 and through the date of this Form 8-K,
there were no disagreements between the Registrant and Semple, Marchal & Cooper,
LLP on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of Semple, Marchal & Cooper, LLP, would have caused Semple,
Marchal & Cooper, LLP to make reference to the subject matter of the
disagreements in connections with its report.
ITEM 9A. CONTROLS AND PROCEDURES
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting. Internal control over
financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under
the Exchange Act as a process designed by, or under the supervision of, the
company's principal executive officer and principal financial officer and
effected by our board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles and includes those policies and
procedures that:
o pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the
assets of the company;
o provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and
o provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
As of August 31, 2008 we conducted an evaluation, under the
supervision and with the participation of our principal executive officer and
principal financial officer, of the effectiveness of our internal control over
financial reporting based on the criteria for effective internal control over
financial reporting established in "Internal Control -- Integrated Framework,"
issued by the Committee of Sponsoring Organizations (COSO) of the Treadway
Commission. Based upon this assessment, we determined that there are material
weaknesses affecting our internal control over financial reporting.
The matters involving internal controls and procedures that our
management considers to be material weaknesses under COSO and SEC rules are: (1)
lack of a functioning audit committee and lack of independent directors on our
board of directors, resulting in potentially ineffective oversight in the
establishment and monitoring of required internal controls and procedures; (2)
inadequate segregation of duties consistent with control objectives; (3)
19
insufficient written policies and procedures for accounting and financial
reporting with respect to the requirements and application of US GAAP and SEC
disclosure requirements; and (4) ineffective controls over period end financial
disclosure and reporting processes. The aforementioned potential material
weaknesses were identified by our Chief Financial Officer in connection with the
preparation of our financial statements as of March 31, 2009 who communicated
the matters to our management and board of directors.
Management believes that the material weaknesses set forth in items
(2), (3) and (4) above did not have an affect on our financial results. However,
the lack of a functioning audit committee and lack of a majority of independent
directors on our board of directors, resulting in potentially ineffective
oversight in the establishment and monitoring of required internal controls and
procedures, can impact our financial statements.
Management's Remediation Initiatives
------------------------------------
Although we are unable to meet the standards under COSO because of the
limited funds available to a company of our size, we are committed to improving
our financial organization. As funds become available, we will undertake to: (1)
create a position to segregate duties consistent with control objectives, (2)
increase our personnel resources and technical accounting expertise within the
accounting function (3) appoint one or more outside directors to our board of
directors who shall be appointed to a Company audit committee resulting in a
fully functioning audit committee who will undertake the oversight in the
establishment and monitoring of required internal controls and procedures; and
(4) prepare and implement sufficient written policies and checklists which will
set forth procedures for accounting and financial reporting with respect to the
requirements and application of US GAAP and SEC disclosure requirements.
We will continue to monitor and evaluate the effectiveness of our
internal controls and procedures and our internal control over financial
reporting on an ongoing basis and are committed to taking further action and
implementing additional enhancements or improvements, as necessary and as funds
allow. However, because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that misstatements due to
error or fraud will not occur or that all control issues and instances of fraud,
if any, within the Company have been detected. These inherent limitations
include the realities that judgments in decision making can be faulty and that
breakdowns can occur because of simple error or mistake. The design of any
system of controls is based in part on certain assumptions about the likelihood
of future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Projections of
any evaluation of controls effectiveness to future periods are subject to risks.
ITEM 9B. OTHER INFORMATION
None
20
PART III
ITEM 10. DIRECTORS EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following table sets forth our directors, and executive officers,
their ages and all offices and positions held. Directors are elected are elected
and serve thereafter until their successors are duly elected by the
stockholders. Officers and other employees serve at the will of the Board of
Directors. The information is presented as of September 2, 2009:
Name Age Position held with Company
---- --- --------------------------
Anthony Silverman 66 Chief Executive Officer,
President and Director
Michael Kramarz 40 Chief Financial Officer
Barry Griffith 40 Director
Judy Lindstrom 64 Chief Executive Officer,
Director, of Oncologix
Corporation, our subsidiary
Steven Kurtzman, MD 47 Director, Oncologix Corporation,
our subsidiary
ANTHONY SILVERMAN, who resigned as a member of our Board of Directors
on October 12, 2007, was appointed President and CEO on April 3, 2009 and is
also Chairman of the board. Mr. Silverman also manages his personal investments.
Mr. Silverman has been a shareholder of BestNet since April 2002. Mr. Silverman
was Founder, Chairman and CEO of Paradise Valley Securities from 1987 to 1999.
For most of his 40-year career in the securities business, Mr. Silverman
concentrated in transactions for the financing of micro-cap and small-cap
companies. Mr. Silverman has led financings aggregating over $500 million for
close to 100 companies, including diverse industries such as airlines, food
products, telecommunications, retail, media and life sciences.
MICHAEL A. KRAMARZ has served as Chief Financial Officer of the
Company since July 15, 2004. Mr. Kramarz was first employed by the Company in
September 2002, as its Controller. Mr. Kramarz is responsible for all financial
statement and accounting functions. From 1995 to 2002, Mr. Kramarz was employed
as Accounting Manager for Assurant Group, where he was responsible for the
accounting and payroll functions for two inbound call centers. In addition, Mr.
Kramarz was responsible for quarterly consolidations into the parent company.
From 1992 to 1995, Mr. Kramarz was a staff accountant at VandenToorn &
Associates CPA firm where his was responsible for compilations and reviews of
financial statements, as well as tax return preparation. Mr. Kramarz holds a
Certified Management Accountant Designation (CMA) and a Certified Public
Accountant Designation (CPA). Mr. Kramarz holds a Bachelor of Science and
Business Administration in Accounting from Aquinas College and a Masters in the
Science of Taxation from Grand Valley State University.
BARRY GRIFFITH has been a director of the company since December of
2004. Mr. Griffith brings 15 years of early stage and upstart medical device
company experience to Oncologix. Mr. Griffith has been involved in the
introduction of novel medical devices in the Orthopedic, Vascular, Neurological
and Cancer markets for companies such as Mitek, Schneider, Novoste and
Medtronic. His present position is a distributor for the St. Jude Medical CRM
division. Prior to that, he was Northeast Area Sales Manager with Cardiovascular
Systems, Inc., Director of Sales for Calypso Medical Technologies and held the
Western Area Director roles with Novoste and Isoray. Isoray is introducing the
new Prostate Brachytherapy Isotope Cesium 131.
JUDY LINDSTROM was appointed to our Board of Directors on June 25,
2007. On January 4, 2008 Ms. .Lindstrom was elected Chairman of the Board. On
February 18, 2008, Ms. Lindstrom was appointed President and Chief Executive
Officer. On April 1, 2009, Ms. Lindstrom resigned her positions but still serves
as President and Director on the Board of our Subsidiary, Oncologix Corporation.
Prior to Oncologix, Ms. Lindstrom was Chief Operating Officer of the U.S.
division of Portland Orthopedics. A privately-held company headquartered in
Sydney, Australia. She has also been a director and business consultant for
Genis, a private company in Iceland, developing bone regeneration technology. Ms
Lindstrom was Executive Vice President, Global Sales and Marketing, for Wright
Medical Technology, Inc. She was President and Chief Executive Officer of
Neovision. Ms Lindstrom was President for MicroAire Surgical Instruments, Inc.
Ms. Lindstrom also served as General Manager for two operating divisions of
Baxter International, V. Mueller Endoscopy and Edward Orthopedics. She was the
first woman promoted to General Manager for a Baxter operating unit. Ms.
Lindstrom served on the board of directors of Everest Medical Corporation (a
NASDAQ listed company prior to its acquisition in April, 2000), Novoste (a
NASDAQ listed company) and served on the board of AdvaMed (formerly the Health
Industry Manufacturers Association).
21
STEVEN KURTZMAN, MD. was elected to our Board of Directors on June 25,
2007. On April 1, 2009, Dr. Kurtzman resigned her positions but still serves as
Director on the Board of our Subsidiary, Oncologix Corporation. He has been an
advisor to our Company and has been the Medical Director of IsoRay Medical, Inc.
a publicly traded company since January 2006. IsoRay manufactures and markets
radiation devices for brachytherapy primarily for the treatment of prostrate
cancer. He has, since 1998, been practicing medicine in the San Francisco,
California, Bay area specializing in radiation oncology. He is currently the
Director of Brachytherapy for Western Radiation Oncology, P.C. He is considered
an expert in the management of prostate cancer and has lectured on and taught
prostate brachytherapy nationally. He holds a BA from Cornell University and is
a graduate of Case Western Reserve University School of Medicine. He completed
his residency training in radiation oncology at the Hospital of the University
of Pennsylvania.
Compliance with Section 16(a) of the Exchange Act
Directors, executive officers and holders of more than 10% of our
outstanding common stock are required to comply with Section 16(a) of the
Securities Exchange Act of 1934, which requires generally that such persons file
reports regarding ownership of and transactions in securities of the Company on
Forms 3, 4, and 5. Based solely on its review of such forms received by it, or
written representations from certain reporting persons, the Company believes
that all Section 16(a) filing requirements applicable to its officers and
directors were complied with during the fiscal year ended August 31, 2008.
Code of Ethics
Our Board of Directors has adopted a code of ethics that applies to
our principal executive officer, principal financial officer and to other
persons performing similar functions. The code of ethics is designed to deter
wrongdoing and to promote honest and ethical conduct, full, fair, accurate,
timely and understandable disclosure, compliance with applicable laws, rules and
regulations, prompt internal reporting of violations of the code and
accountability for adherence to the code. We will provide a copy of our code of
ethics, without charge, to any person upon receipt of written request fur such
delivered to our corporate headquarters. All such requests should be send to
Oncologix Tech, Inc., P.O. Box 8832, Grand Rapids, MI 49518-8832.
22
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes all compensation paid for services
rendered to Oncologix for the fiscal years ended August 31, 2008 and 2007 by our
Principal Executive Officer and our two most highly compensated executive
officers other than our principal executive officer. None of the Company's other
employees received compensation in excess of $100,000 during the last completed
fiscal year.
SUMMARY COMPENSATION TABLE
Non-qualified
Nonequity deferred All Other
Name and Principal Stock Option incentive plan compensation compen- Other
Position Year Salary Bonus ($) awards($) awards($) compensation($) earnings($) sation($) Total($)
-------- ---- ------ --------- --------- --------- --------------- ----------- --------- --------
Judy Lindstrom ............ 2008 $118,358 $ -- $ -- $ 1,828 $ -- $ -- $ 2,000 $122,186
Chief Executive Officer
and 2007 $ -- $ -- $ -- $ 24,722 $ -- $ -- $ 1,000 $ 25,722
Chairman of the Board (1)
Andrew M. Green ........... 2008 $ 66,666 $ -- $ -- $ -- $ -- $ -- $ -- $ 66,666
CEO and President (2) ..... 2007 $183,333 $ -- $ -- $ 3,104 $ -- $ -- $ -- $186,437
Stanley L. Schloz ......... 2008 $ 19,833 $ -- $ -- $ -- $ -- $ -- $ 2,000 $ 21,833
Chariman of the Board (3) . 2007 $ 62,333 $ -- $ -- $ 3,104 $ -- $ -- $ 11,000 $ 76,437
Dr. Andrew M. Kennedy ..... 2008 $ 70,000 $ -- $ -- $ -- $ -- $ -- $ -- $ 70,000
CMO (4) ................... 2007 $220,000 $ -- $ -- $ 3,104 $ -- $ -- $ -- $223,104
Adam Lowe ................. 2008 $ 66,666 $ -- $ -- $ -- $ -- $ -- $ -- $ 66,666
COO (5) ................... 2007 $183,333 $ -- $ -- $ 5,326 $ -- $ -- $ -- $188,659
Michael A. Kramarz ........ 2008 $ 64,291 $ -- $ -- $ -- $ -- $ -- $ -- $ 64,291
Chief Financial Officer (6) 2007 $ 74,833 $ -- $ -- $ -- $ -- $ -- $ -- $ 74,833
(1) Ms. Lindstrom was appointed to the Company's Board of Directors on
June 25, 2007. On January 4, 2008, Ms. Lindstrom was elected Chairman
of the Board. On February 18, 2008, Ms. Lindstrom was elected
President and CEO with an annual salary of $200,000. On June 25, 2007,
Ms. Lindstrom was granted options to purchase 20,000 shares of our
common stock at a per share exercise price of $0.37 per share. These
options vest as follows: 1/3 vest immediately; 1/3 vest in one year;
1/3 vest in two years. On July 6, 2007, Ms. Lindstrom was granted
options to purchase 100,000 shares of our common stock at a per share
exercise price of $0.40 which vest in one year. On December 19, 2007,
Ms. Lindstrom was granted options to purchase 10,000 shares of our
common stock at a per share exercise price of $0.24 and vest in one
year.
(2) Mr. Green was appointed to the Company's Board of Directors on July
26, 2006. Mr. Green has an employment agreement with the Company's
subsidiary, Oncologix Corporation, where his is to be paid an annual
salary of $180,000. On June 25, 2007 the Board of Directors appointed
Mr. Green Chief Executive Officer and approved an increase in Mr.
Green's annual salary to $200,000. On February 18, 2008, Mr. Green
resigned as Chief Executive Officer and resigned from the Company's
Board of Directors. On December 19, 2006, Mr. Green was granted
options to purchase 10,000 shares of our common stock at a per share
23
exercise price of $0.45 and vest in one year. On December 19, 2007,
Mr. Green was granted options to purchase 10,000 shares of our common
stock at a per share exercise price of $0.24 and vest in one year.
These options were cancelled upon resignation.
(3) Mr. Schloz was appointed President on November15, 2004. Pursuant to
his agreement, he was to receive annual compensation of $54,000. On
July 27, 2006, the Company's Board of Directors authorized an increase
in annual compensation to $68,000. Also on that date, the Board of
Directors authorized a $10,000 bonus. Mr. Schloz also receives $12,000
annually for service on the Company's Board of Directors. On June 25,
2007, Mr. Schloz was elected as the Company's Chairman of the Board
and subsequently stepped down as President and Chief Executive
Officer. On December 27, 2007, Mr. Schloz resigned from the Company's
Board of Directors. On December 19, 2006, Mr. Schloz was granted
options to purchase 10,000 shares of our common stock at a per share
exercise price of $0.45 and vest in one year.
(4) Dr. Kennedy was appointed to the Company's Board of Directors on July
26, 2006. Dr. Kennedy has an employment agreement with the Company's
subsidiary, Oncologix Corporation, where his is to be paid an annual
salary of $240,000. On January 28, 2008, Dr. Kennedy resigned as an
officer and resigned from the Company's Board of Directors. On
December 19, 2006, Dr. Kennedy was granted options to purchase 10,000
shares of our common stock at a per share exercise price of $0.45 and
vest in one year. On December 19, 2007, Dr. Kennedy was granted
options to purchase 10,000 shares of our common stock at a per share
exercise price of $0.24 and vest in one year. These options were
cancelled upon resignation.
(5) Mr. Lowe has an employment agreement with the Company's subsidiary,
Oncologix Corporation, where his is to be paid an annual salary of
$180,000. On June 25, 2007 the Board of Directors appointed Mr. Lowe
Chief Operating Officer and approved an increase in Mr. Lowe's annual
salary to $200,000. On February 18, 2008, Mr. Lowe resigned as Chief
Operating Officer and resigned from the Company's Board of Directors.
On June 25, 2007, Mr. Lowe was granted options to purchase 20,000
shares of our common stock at a per share exercise price of $0.38.
These options vest as follows: 1/3 vest immediately; 1/3 vest in one
year; 1/3 vest in two years. On December 19, 2007, Mr. Lowe was
granted options to purchase 10,000 shares of our common stock at a per
share exercise price of $0.24 and vest in one year. These options were
cancelled upon resignation.
(6) Mr. Kramarz was hired by Oncologix as our Controller on September 16,
2002. Mr. Kramarz was appointed Chief Financial Officer on July 15,
2004. Mr. Kramarz salary was set at $76,000 annually on June 25, 2007.
Effective January 1, 2008, Mr. Kramarz has been serving as Chief
Financial Officer on a consulting basis.
EMPLOYMENT AGREEMENTS
On July 26, 2006, the Company, through its subsidiary Oncologix
Corporation, entered into an employment agreement with Dr. Andrew Kennedy
whereby Dr. Kennedy is to serve as the Company's Chief Scientific and Medical
Officer. The term of the agreement is two years, and will automatically extend
for additional one year term on each anniversary date unless the term is
modified or terminated in accordance with the terms of the agreement at least
sixty days prior to such anniversary dates. The agreement provides that Dr.
Kennedy will receive annual compensation of $240,000. Dr. Kennedy is to
participate in any benefit plans provided to executive employees of the Company,
and to a bonus at the discretion of the Board of Directors. He waived his salary
for the months of August and September, 2007. This agreement was terminated upon
resignation.
On July 26, 2006, the Company, through its subsidiary Oncologix
Corporation, entered into an employment agreement with Andrew Green whereby Mr.
Green is to serve as the Company's Chief Executive Officer. The term of the
agreement is two years, and will automatically extend for additional one year
term on each anniversary date unless the term is modified or terminated in
accordance with the terms of the agreement at least sixty days prior to such
anniversary dates. The agreement provides that Mr. Green will receive annual
compensation of $180,000. Mr. Green is to participate in any benefit plans
provided to executive employees of the Company, and to a bonus at the discretion
of the Board of Directors. Effective as of July 1, 2007, Mr. Green's annual
compensation was increased to $200,000. This agreement was terminated upon
resignation.
On July 26, 2006, the Company, through its subsidiary Oncologix
Corporation, entered into an employment agreement with Adam Lowe whereby Mr.
Lowe is to serve as the Company's Chief Operating Officer. The term of the
agreement is two years, and will automatically extend for additional one year
24
term on each anniversary date unless the term is modified or terminated in
accordance with the terms of the agreement at least sixty days prior to such
anniversary dates. The agreement provides that Mr. Lowe will receive annual
compensation of $180,000. Mr. Lowe is to participate in any benefit plans
provided to executive employees of the Company, and to a bonus at the discretion
of the Board of Directors. Effective as of July 1, 2007, Mr. Lowe's annual
compensation was increased to $200,000. This agreement was terminated upon
resignation.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
Option awards
-----------------------------------------------------------------------------------------------------------------
Equity incentive
plan awards:
Number of Number of number of
securities securities securities
underlying underlying underlying
unexercised unexercised unexercised
Name and Principal options options unearned Option exercise Option expiration
Position (#) Exercisable (#) Unexercisable options (#) price($) date
-------- --------------- ----------------- ----------- -------- ----
Judy Lindstrom 13,333 6,667 -- $ 0.37 06/26/17
100,000 -- -- $ 0.40 07/06/13
10,000 -- -- $ 0.24 12/19/17
Michael A. Kramarz 45,000 -- -- $ 1.33 09/16/12
10,000 -- -- $ 0.53 12/12/12
30,000 -- -- $ 0.50 10/06/13
50,000 -- -- $ 0.23 07/15/14
20,000 -- -- $ 0.17 03/24/15
100,000 -- -- $ 0.40 03/22/13
Stock awards
-------------------------------------------------------------------------------
Equity incentive Equity incentive
plan awards: plan awards:
number of market or payout
Number of Market value unearned shares, value of unearned
shares or units of of shares or units units or other shares, units or
stock that have of stock that have rights that have other rights that
not vested (#) not vested ($) not vested (#) have not vested ($)
-------------- -------------- -------------- -------------------
Judy Lindstrom -- $ -- -- $ --
-- $ -- -- $ --
-- $ -- -- $ --
Michael A. Kramarz -- $ -- -- $ --
-- $ -- -- $ --
-- $ -- -- $ --
-- $ -- -- $ --
-- $ -- -- $ --
-- $ -- -- $ --
Options Grants
On June 26, 2007, Ms. Lindstrom was granted options to purchase an
aggregate of 20,000 shares of our common stock at an exercise price of $0.37 per
share. These options vest as follows: one-third vest immediately, one-third vest
in one year, one-third vest in two years.
On July 6, 2007, Ms. Lindstrom, Mr. Griffith and Dr. Kurtzman were
each granted options to purchase an aggregate of 100,000 shares of our common
stock at an exercise price of $0.40 per share. These options vest in one year.
Option Exercise
During the fiscal year ended August 31, 2007, Mr. Schloz exercised
20,000 options at an exercise price of $0.165 per share resulting on funds to
the Company of $3,300. There were no other options exercised by the Named
Executive Officers and the Company did not amend or adjust the exercise price of
any stock options.
25
DIRECTOR COMPENSATION
Non-qualified
Fees earned Nonequity deferred
Name and Principal or paid in Stock Option incentive plan compensation All Other All Other
Position cash ($) awards($) awards($) compensation($) earnings($) compensation($) Total($)
-------- -------- --------- --------- --------------- ----------- --------------- --------
Barry Griffith $ 2,000 $ -- $ 1,828 $ -- $ -- $ -- $ 3,828
Dr. Steven Kurtzman $ 1,000 $ -- $ 1,828 $ -- $ -- $ -- $ 2,828
Anthony Silverman $ 1,000 $ -- $ -- $ -- $ -- $ -- $ 1,000
All directors are reimbursed for their reasonable out-of-pocket
expenses incurred in connection with attendance of board meetings and advising
and consulting with the officers and management from time to time. In addition,
each director receives options to purchase 20,000 shares of common stock upon
election to the board and annual grants of 10,000 options for each year of
service thereafter. The options vest one year from the date of the grant and
terminate upon the earlier of 10 years from the date of grant or six months
after the director ceases to be a member of the Board.
All of the directors waived all fees for the months of August and
September, 2007, and Dr. Kennedy waived his salary for the same period. In
addition, Mr. Schloz waived his salary as Chairman for the month of August,
2007. Board members have not waived any monthly fees since October 2007.
26
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table sets forth as of September 15, 2009, certain
information with regard to the beneficial ownership of our common stock held by
(i) each shareholder known by us to beneficially own 5% or more of our
outstanding common stock, (ii) each director individually, (iii) the named
executive officers and (iv) all of our officers and directors as a group:
Name and Address Amount and Nature Percent
Title of Class of Beneficial Owner (2) of Beneficial Owner (1) of Class (1)
- -------------- ----------------------- ----------------------- ------------
Common Stock Judy Lindstrom 100,000 (4) 0.06%
Common Stock Michael Kramarz 255,000 (5) 0.16%
Common Stock Barry Griffith 509,000 (6) 0.33%
Common Stock Anthony Silverman 22,600,302 (7) 14.49%
Common Stock Investor Company 10,736,745 (8) 6.89%
c/o Mountainview Asset Mgmt. 5J5131
77 Bloor Street W., 3rd Floor
Toronto, Ontario M4Y 2T1
Common Stock Michele De Gregorio, MD 8,361,369 (9) 5.36%
4550 Northridge Court
West Bloomfield, MI 48323
Common Stock Andrew Kennedy, MD 13,949,738 (10) 8.95%
307 Devonhall Lane
Cary, NC 27518
Common Stock Jeff Franco 13,949,738 (11) 8.95%
6501 Autumn Wind Circle
Clarksville, MD 21029
Common Stock All directors and executive officers 23,464,302 14.96%
as a group
Less than 1%
(1) Unless otherwise noted, the address of each holder is P.O. Box 8832,
Grand Rapids, MI 49518-8832.
(2) A person is deemed to be the beneficial owner of securities that can
be acquired within 60 days from September 8, 2009 through the exercise
of any option, warrant or other right. Shares of Common Stock subject
to options, warrants or rights which are currently exercisable or
exercisable within 60 days are deemed outstanding solely for computing
the percentage of the person holding such options, warrants or rights,
but are not deemed outstanding for computing the percentage of any
other person.
(3) The amounts and percentages in the table are based upon 155,900,625
shares of Common Stock outstanding as of September 8, 2009
(4) Includes 100,000 shares subject to vested options.
(5) Includes 255,000 shares subject to vested options.
(6) Includes 500,000 shares subject to vested options and 9,000 shares of
stock underlying units held.
(7) Includes 70,000 shares subject to vested options, direct ownership of
24,403,524 shares
(8) Includes direct ownership of 10,736,745 shares.
(9) Includes direct ownership of 8,361,369 shares.
(10) Includes direct ownership of 13,949,738 shares indicated of which
8,369,842 are subject to an escrow agreement.
(11) Includes direct ownership of 13,949,738 shares indicated of which
8,369,842 are subject to an escrow agreement.
27
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
On March 23, 2005, we issued to Anthony Silverman, a former member of
our Board of Directors, a Convertible Promissory Note in the principal amount of
$110,000, convertible at the option of the holder into 916,667 shares of the
Company's common stock. The Convertible Promissory Note was due on March 31,
2006 and bears interest at the rate of 10% per annum, payable monthly and is
convertible into our common stock at a rate of $0.12. During May 2008, Mr.
Silverman entered into an agreement whereunder the date on which payment is due
is extended until December 4, 2008, the price at which amounts due under the
notes may be converted to shares of common stock was reduced to $0.15 per share;
provided that any conversion effected on or before June 16, 2008 would be at a
price of $0.05 per share. On June 9, 2008, the investor elected to convert
$81,700 in principal and interest into 1,634,000 shares of common stock at an
exercise price of $0.05 per share. No beneficial conversion feature was recorded
as a result of the note extension or conversion. Mr. Silverman elected to extend
$2,299 in accrued interest until March 31, 2009 which is convertible at $0.15
per share. The Company recognized $47,658 in conversion expense as a result of
the reduction of the conversion price to induce conversion.
On July 7, 2006, we issued to Mr. Silverman another Convertible
Promissory Note in the principal amount of $200,000 convertible into our common
stock at a conversion price of $0.30 per share. The Company subsequently
recorded a beneficial conversion feature of $66,667 in conjunction with the
private placement issued on December 4, 2006. This latter note was payable at
the end of 90 days following the date of issue, accrues interest at the rate of
10% per annum and is convertible into our common stock at a conversion price of
$0.30 per common share. Mr. Silverman subsequently agreed to extend this note
until January 14, 2008. During fiscal 2007, we expensed $66,667 as interest and
finance charges as a result of amortizing the beneficial conversion feature.
During May 2008, Mr. Silverman entered into an agreement whereunder the date on
which payment is due is extended until December 4, 2008, the price at which
amounts due under the notes may be converted to shares of common stock was
reduced to $0.15 per share; provided that any conversion effected on or before
June 16, 2008 would be at a price of $0.05 per share. On May 30, 2008, the
investor elected to convert $237,973 in principal and interest into 4,759,452
shares of common stock at an exercise price of $0.05 per share. The Company
recognized $158,648 in conversion expense as a result of the reduction of the
conversion price to induce conversion.
On December 15, 2006, we issued to Mr. Silverman a 16-day promissory
note, for bridge financing in the amount of $200,000. This note accrued interest
at a rate of 10% per annum and was due in full, including accrued interest, on
December 31, 2006. On December 29, 2006, Mr. Silverman agreed to extend this
note until January 31, 2007 and then further extended until December 15, 2007.
In connection with a $25,000 principal payment on November 30, 2007, Mr.
Silverman agreed to extend the balance of the note to January 14, 2008. During
May 2008, Mr. Silverman entered into an agreement whereunder the date on which
payment is due is extended until December 4, 2008, the price at which amounts
due under the notes may be converted to shares of common stock was reduced to
$0.15 per share; provided that any conversion effected on or before June 16,
2008 would be at a price of $0.05 per share. At the time the promissory note was
extended in May 2008, the Company did not recognize any beneficial conversion
feature on the reclassification of this promissory note to a convertible
promissory note. On June 9, 2008, the investor elected to convert $175,000 in
principal into 3,500,000 shares of common stock at an exercise price of $0.05
per share. The Company recognized $116,667 in conversion expense as a result of
the reduction of the conversion price to induce conversion. Mr. Silverman
elected to extend $28,383 in accrued interest until December 4, 2008 which is
convertible at $0.15 per share.
On April 13, 2007, we issued to Mr. Silverman a 45-day promissory note
for bridge financing in the amount of $400,000. This note accrued interest at a
rate of 8% per annum and was due in full, including accrued interest on May 28,
2007. This note has been extended until July 31, 2007 and then further extended
until December 15, 2007. On November 30, 2007, Mr. Silverman agreed to extend
the note to January 14, 2008. During May 2008, Mr. Silverman entered into an
agreement whereunder the date on which payment is due is extended until December
4, 2008, the price at which amounts due under the notes may be converted to
shares of common stock was reduced to $0.15 per share; provided that any
conversion effected on or before June 16, 2008 would be at a price of $0.05 per
share. At the time the note was extended, during May 2008, the Company did not
recognize any beneficial conversion feature on the reclassification of this
promissory note to a convertible promissory note. On June 9, 2008, the investor
elected to convert $400,000 in principal into 8,000,000 shares of common stock
at an exercise price of $0.05 per share. The Company recognized $266,667 in
conversion expense as a result of the reduction of the conversion price to
induce conversion. Mr. Silverman elected to extend $33,140 in accrued interest
until December 4, 2008 which is convertible at $0.15 per share.
28
On June 9, 2008, we issued to Mr. Silverman a convertible promissory note for
extended interest expense in the amount of $63,822. This note accrued interest
at a rate of 10% per annum and was due, including accrued interest on March 31,
2009. In fiscal 2009, $63,822 of principal plus accrued interest was converted
into common stock. See Note 14, Subsequent Events for further information on
this conversion.
On October 13, 2008, the company entered into a Stock Purchase
Agreement with its CEO and President, Anthony Silverman to sell 1,500,000 shares
of common stock at $0.01 per share. The shares were issued in October 2008.
Director Independence
The board has determined that one of the current directors would qualify as
independent director as that term is defined in the listing standards of the
NYSE Amex. Such independence definition includes a series of objective tests,
including that the director is not an employee of the company and has not
engaged in various types of business dealings with the company.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth approximate fees billed to us by our
auditors during the fiscal years ended August 31, 2008 and 2007 for: (i)
services rendered for the audit of our annual financial statements and the
review of our quarterly financial statements; (ii) services by our auditor that
are reasonably related to the performance of the audit or review of our
financial statements and that are not reported as Audit Fees; (iii) services
rendered in connection with tax compliance, tax advice and tax planning; and
(iv) all other fees for services rendered.
August 31, 2008 August 31, 2007
--------------- ---------------
(i) Audit Fees $ 66,381 $ 105,000
(ii) Audit Related Fees $ 48,480 $ 41,000
(iii) Tax Fees $ 8,089 $ 9,000
(iv) All Other Fees $ 5,521 $ --
29
ITEM 15. EXHIBITS, LIST AND REPORTS ON FORM 8-K.
(a)(1) The financial statements listed in the index set forth in Item 7 of this
Form 10-K is filed as part of this report.
(a)(2) Exhibits
Number Description of Filing Method
------ --------------------- ------
2.1 Agreement of Merger and Plan of Reorganization between BestNet (9)
Communications Corp, Oncologix Corporation and JDA Medical
Technologies, Inc.
3.1 Articles of Incorporation, as originally filed with the Nevada (1)
Secretary of State on February 19, 1998, and as amended to date
3.3 Certificate of Amendment to Articles of Incorporation, as originally (6)
filed with the Nevada Secretary of State.
3.4 Amended Certificate of Designations, Rights, Preferences and (6)
Limitations of Series A Convertible Preferred Stock, as originally
filed with the Nevada Secretary of State on November 19, 2003.
3.5 Amended Certificate of Designations, Rights, Preferences and (6)
Limitations of Series B Convertible Preferred Stock, as originally
filed with the Nevada Secretary of State on November 19, 2003.
3.6 Amended Certificate of Designations, Rights, Preferences and (6)
Limitations of Series C Convertible Preferred Stock, as originally
filed with the Nevada Secretary of State on November 19, 2003.
3.7 Amended and Restated Bylaws of BestNet Communications Corp. (8)
3.8 Certificate of Amendment of Articles of Incorporation, as originally (11)
filed with the Nevada Secretary of State.
4 2000 Incentive Stock Plan (2)
4.1 Form of Unit Purchase Agreement (7)
10.1 Securities Purchase Agreement between Wavetech and the investor and (3)
the Placement Agent
10.2 Registration Rights Agreement between Wavetech, the Investor and the (3)
Placement Agent
10.3 Registration Right Agreement (3)
10.4 Securities Purchase Agreement (3)
10.5 Product Customization Agreement (4)
10.6 Purchase Agreement by and among Softalk, Inc., Interpretel (Canada) (5)
Inc. and Wavetech International, Inc. dated October 25, 1999
10.7 Amendment No. 1 to Amended and Restated License Agreement (5)
10.8 Amended and Restated License Agreement (5)
10.9 Share Exchange Agreement by and among Wavetech International, Inc., (5)
Interpretel (Canada) Inc. and Softalk, Inc. dated November 13, 1999
10.10 Minutes of Settlement between BestNet Communications Corp. and (8)
Softalk, Inc.
10.11 Lease Agreement Dated November 1, 2005, by and between Noto's (10)
Properties LLC. and Bestnet
10.12 Lease Agreement Dated July 25, 2006, by and between R & J Ventures (10)
LLC. and Oncologix Corporation
30
10.13 Lease Agreement Dated July 12, 2006, by and between Office Suites Plus (10)
and Oncologix Corporation
10.14 Form of Note and Warrant Purchase Agreement between BestNet and (10)
Mountainview Opportunistic Growth Fund LP
10.15 Form of Note Purchase Agreement Issued July 7, 2006 (10)
10.16 Franco Consulting Agreement (9)
10.17 Kennedy Employment Agreement (9)
10.18 Green Employment Agreement (9)
10.19 Lowe Employment Agreement (9)
10.20 License to Fountain Pharmaceuticals, Inc. (11)
14.1 Oncologix Tech, Inc. Code of Ethics (6)
21 Subsidiaries of the Registrant *
32.1 Section 906 Certification of Andrew M. Green *
32.2 Section 906 Certification of Michael A. Kramarz *
31.1 Certification of Chief Executive Officer *
31.2 Certification of Chief Financial Officer *
99 Consent of Chisholm, Bierwolf, Nilson & Morrill, LLC. *
- -------------------
* Filed herewith
(1) Incorporated by reference to the like numbered exhibit to Form 10-QSB for
the quarter ended February 28, 1998.
(2) Incorporated by reference to the like numbered exhibit to Form S-8 as filed
on May 29, 2001.
(3) Incorporated by reference to exhibit 4.2 to Form 8-K filed on May 16, 2000.
(4) Incorporated by reference to exhibit 10.1 to the Form 10-K for the fiscal
year ended August 31, 2000.
(5) Incorporated by reference to the Form 10-KSB for the fiscal year ended
August 31, 1999, exhibits 10.6, 10.7, 10.8 and 10.9 were numbered exhibits
10.1, 10.2, 10.3 and 10.4 respectively in the Form 10-KSB for the year
ended August 31, 1999.
(6) Incorporated by reference to the Form 10-KSB for the fiscal year ended
August 31, 2003.
(7) Incorporated by reference to the Form 10-QSB for the quarter ended May 31,
2003, exhibit 4.4 was exhibit 10.1 in the Form 10-QSB for the quarter ended
May 31, 2003.
(8) Incorporated by reverence to the Form 10-KSB for the fiscal year ended
August 31, 2004.
(9) Incorporated by reference to the Current Report on Form 8-K, dated July 26,
2006.
(10) Incorporated by reference to the Form 10-KSB for the fiscal year ended
August 31, 2006.
(11) Incorporated by reference to the Form 10-KSB for the fiscal year ended
August 31, 2007
31
(b) Reports on Form 8-K Filed during the Last Quarter of The Period Covered by
This Report are as Follows:
September 4, 2007 Oncologix Tech, Inc. issues convertible promissory
note with Chairman of the Board.
September 13, 2007 Oncologix Tech, Inc. issues press release dated
September 10, 2007.
October 12, 2007 Resignation of Director from Oncologix Tech, Inc.
Board of Directors
November 26, 2007 Oncologix Tech, Inc. issues press release dated
November 26, 2007.
32
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ONCOLOGIX TECH, INC.
Date: November 4, 2009 By: /s/ Anthony Silverman
--------------------------------
Anthony Silverman
Chief Executive Officer
and President
Date: November 4, 2009 By: /s/ Michael A. Kramarz
--------------------------------
Michael A. Kramarz
Chief Financial Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
By: /s/ Anthony Silverman Date: November 4, 2009
--------------------------------------------------
Anthony Silverman, Chief Executive Officer,
President and Director
By: /s/ Michael A. Kramarz Date: November 4, 2009
--------------------------------------------------
Michael A. Kramarz, Chief Financial Officer
By: /s/ Barry Griffith Date: November 4, 2009
--------------------------------------------------
Barry Griffith, Director
33